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Motorcar Parts of America, Inc. (NASDAQ:MPAA)

Q4 2014 Earnings Conference Call

June 16, 2014 01:00 PM ET

Executives

Gary Maier - IR

Selwyn Joffe - President and CEO

David Lee - CFO

Analyst

Matt Riley - Roth Capital

Steve Dyer - Craig-Hallum

Jimmy Baker - B. Riley & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America Fiscal Year 2014 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

At this time, I would now like hand the conference over to Mr. Gary Maier. Sir you may begin.

Gary Maier

Thank you. Thank you everyone, for joining us and welcome to Motorcar Parts of America’s fourth quarter year end 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'd like to remind everyone of the Safe Harbor statements included in today's press release.

The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements, including statements made during the course of today's conference call. Such forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the Company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in 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 various filings with the Securities and Exchange Commission.

With that said, we’d like to begin the call and I’d like to turn it over to Selwyn.

Selwyn Joffe

Thank you, Gary. I appreciate everyone joining us today. Fiscal 2014, as you can see was an excellent year for us, ending with an exceptionally strong quarter. For the full year we achieved a record $52.4 million of adjusted EBITDA as shown in the tables of our press release. Net sales were record $259 million, up 21.4% from last year, reflecting growth in all our product categories.

Current economic conditions along with aging of our car fleets continue to provide strong demand for our rotating electrical product as well as our new and growing wheel hub product line. As I highlighted on previous calls, data from postures (ph) average age of vehicles are 11.4 years. In addition, as a number of cars in the 12 plus year old category continues to grow, the replacement rates for these vehicles increase significantly. Current expectations are that the average age of light vehicles will continue to increase and this should continue to be a long term trend. Our sector of the automotive industry benefits from this aging vehicle population and as such we believe the outlook is strong and stable.

For those of you new to our story, let me just mention that the size of the aftermarket parts business is estimated to be more than $122 billion at the manufacturing price level with the rotating electrical segment estimated at $1.4 billion, the wheel hub and baring business estimated $1.2 billion. Our share in the rotating electrical is approximately 25% and we are well positioned to grow the share in both the DIY, Do It Yourself and DIFM, Do It For Me markets by leveraging our available manufacturing capacity, distribution strengths, reputation for top notch products and award winning customer service.

We supply more than 20,000 stores and our customers are gaining share in the professional install market with their brands, which bodes well for us. We are in a very competitive environment which requires us to focus on continuous improvement. Equally important we see numerous opportunities to leverage our awarding winning customer service and product quality to enhance market share both for rotating electrical and wheel hubs as well as benefit from the near term introduction of the new product line. We expect to begin shipping new product line late in our fiscal second quarter and we will provide further information as shipments commence.

With respect to our nicely growing wheel hub product line which we launched at the end of June 2013, we just completed the third full quarter. As I’ve mentioned on previous calls and at conferences, this category represents a $1.2 billion marketplace in North America. It is a fast growing and evolving category for a number of significant reasons. First, wheel hub assembly contains the antilock braking mechanism. This technology has become more mainstream on vehicles during the last decade and these vehicles are reaching prime replacement stages. Secondly, more recently antilock braking technology is being included in the rear wheel hub, which should further enhance the category growth rates because you now have four wheels instead of two. This category has similar failure rate characteristics as rotating electrical. So as cars age, failure rates grow significantly. Industry research indicates that this category will grow at a 7% plus annual compound growth rate. We expect disproportionately better growth rates as non-OE brands like MPAs gain market share.

In short the Company’s outlook and growth prospects are very positive. We expect our revenues for this fiscal year ending March 31, 2015 to show strong growth, supported by the strength of business on all fronts, rotating electrical, wheel hubs and contribution from our new product line. We have been awarded significant new business in all of our product lines with various dates for shipments to begin.

As a result, while we expect continued strong revenues in this fiscal year, our run rate at year end should be even greater. Contributing to our success is the fact that our product fill rates remain very strong and customers recognize the value added benefits of our comprehensive customer service program. These factors supports customer sales growth and in-turn our success. We feel business has never been better for the Company. We expect net sales for the fiscal 2015 first quarter to increase by approximately 20% over the prior year period.

I'll iterate business is excellent and stronger than ever for us. We expect excellent organic growth as we ramp up our new businesses. As we announced this morning, sales for the fourth quarter increased 32.1% to $76.7 million from the same period a year ago and net sales for fiscal 2014 increased 21.4% to $258.7 million on a year-over-year basis.

On an adjusted basis, net income for the fourth quarter increased 86% to $6.8 million or $0.43 per diluted share and for the year adjusted net income increased 55% to $21.3 million or $1.39 per diluted share. These numbers are even better when you take into account standard inventory revaluation write downs which David will discuss in more detail.

David will now discuss our financials and I’ll take questions afterwards. Thanks.

David Lee

Thank you, Selwyn. I am delighted to report that the fourth quarter and fiscal year 2014 were record results. Net sales for the fourth quarter were $76.7 million and $18.6 million or 32.1% increase compared with the prior year fourth quarter. Adjusted earnings per share was $0.43 for the fourth quarter and adjusted EBITDA was approximately $14.9 million for the fourth quarter.

Fourth quarter results benefited from continued contributions from the Company's new wheel hub product line started at the end of June 2013, as Selwyn previously noted. Results were impacted by various factors including the following three items, $3.6 million non-cash mark-to-market net loss related to warrant valuation, $596,000 of expenses related to discontinued subsidiaries and $419,000 million related to non-cash share based compensation.

Let me now review the financial results for the fourth quarter. Net sales increased by $18.6 million or 32.1% to $76.7 million for the fiscal fourth quarter, compared with net sales of $58 million for the prior year period a year earlier. The increase in net sales was due to an increase in net sales of the rotating electrical business by $6.6 million or 11.5% during the three months ended March 31, 2014 compared with the same period of the prior year and sales of wheel hub assemblies and wheel hub bearings of $12.0 million for the fourth quarter.

The gross profit percentage remained consistent at 31.2% during the three months ended March 31, 2014 compared with a prior year. General and administrative expenses increased by $1 million after adjusting for non-cash mark-to-market net losses, expenses related to discontinued subsidiaries and FAS 123R non-cash stock compensation expense. The increase is primarily due to additional general and administrative expenses related for the new wheel hubs product line and additional professional fees.

Sales and marketing expenses increased $248,000 compared with the prior year fourth quarter due to employee related expenses and travel. Operating income for the fiscal 2014 fourth quarter was $14.3 million, compared with $9.7 million a year ago adjusted to exclude discontinued subsidiaries expenses and other costs previously explained.

EBITDA for the fourth quarter was $14.9 million adjusted for various items as previously explained and depreciation and amortization expense was $651,000 for the fourth quarter. Interest expense was $3.2 million for the fourth quarter, compared with $4 million for the prior year fourth quarter of a decrease of $774,000 primarily due to lower bank debt interest rates.

Income tax expense was approximately 52% for the three months ended March 31, 2014 primarily impacted by the nondeductible expenses in connection with the fair value adjustments on the warrants previously discussed.

Income from continuing operations for the fourth quarter, adjusted for the items explained above was $6.8 million or $0.43 per diluted share, which also reflects the increase in the weighted average number of diluted shares outstanding to $15.8 million for the fourth quarter compared with $14.5 million at the prior year fourth quarter, compared with $3.6 million or $0.25 per diluted share for the comparable period a year earlier.

Let me now take a few minutes to review the results for the full fiscal year. Net sales increased by $45.5 million or 21.4% to $258.7 million for fiscal year 2014, compared with net sales of $213.2 million for the prior period a year earlier. The increase in net sales was due to an increase in net sales of the rotating electrical business by $16.2 million or 7.6% to $229.4 million for the 12 months ended March 31, 2014, compared with the prior year and sales of wheel hub assemblies and wheel hub bearings of $29.3 million for approximately nine months from the start of business in late June 2013 to March 31, 2014. Adjusted for a startup cost of $1.4 million, wheel hub net sales were approximately $30.7 million with approximately a 9 month period from the start of the business in late June 2013 to March 31, 2014. The gross profit percentage decreased to 31.9% for fiscal year 2014 after adjusting for wheel hub startup costs and discontinued subsidiaries cost compared to 32.5% for the prior fiscal year, primary due to product mix.

General and administrative expenses increased $108 million after adjusting for non-cash mark-to-market net losses, expenses related to discontinued subsidiaries and FAS 123R non-cash stock compensation expense. The increase is primary due to additional general and administrative expenses related to new wheel hubs product line and additional professional fees. Sales and marketing expenses increased $527,000, compared with the prior year due to employee related expenses in travel.

Operating income for fiscal year 2014 was $49.7 million compared with $38.4 million a year ago, adjusted to exclude discontinued subsidiary expenses and other costs previously explained. EBITDA for the fiscal year 2014 was 52.4 million adjusted for various items as previously explained and depreciation and amortization expense was 2.7 million for fiscal year 2014.

Interest expense was $14.8 million for fiscal year 2014, compared with $15.8 million for the prior year after adjusting both periods for discontinued subsidiaries related interest and write-off of prior deferred loan fees or a decrease of $1 million primarily due to lower bank debt interest rate and lower factoring interest rates.

Income tax expense was approximately 53% for the 12 months ended March 31, 2014 primarily impacted by the nondeductible expenses in connection with the fair value adjustments on the warrants previously discussed.

Income from continuing operations for fiscal year 2014, adjusted for the items explained above was $21.3 million or $1.39 per diluted share, which also reflects the increase in the weighted average number of diluted shares outstanding to $15.3 million for fiscal 2014 compared with $14.4 million for the prior year, compared with $13.8 million or $0.96 per diluted share for the prior period a year earlier.

At March 31, 2014, we had a $93 million term loan, $10 million revolver and approximately $24.6 million in cash resulting in net bank debt of approximately $78 million. There was availability of approximately $17.9 million on the $30 million revolver credit facility, reflecting approximately $2.5 million of outstanding letters of credit.

Last week, we entered into a first amendment to our bank agreement pursuing to which among other things the revolver facility was increased by $10 million to $40 million, an increased flexibility for CapEx spending as the business grows by increasing the spending limit. Please refer to more details into the 8-K filing this morning.

At March 31, 2014, MPA had approximately $319 million in total assets, current assets were $125 million and current liabilities were $103 million. Cash flows provided by operations during the 12 months ended March 31, 2014 was approximately $13.3 million, which included $16.5 million in income tax refunds and also included working capital use of cash to build inventory levels in anticipation of future sales as well as an increase in account receivable due to the high sales levels during the second half of fiscal fourth quarter.

Additionally impacting cash flow for fiscal year 2014 includes $5.8 million in proceeds from stock option exercises, $5.2 million paid in loan fees in connection with the refinancing of the credit facility and $2.2 million payments to purchase our lenders warrants. MPA expects to realize a total tax benefit of cash and credits of approximately $38 million as a result of the losses incurred for the investment in previous subsidiaries which has already contributed to liquidity and should further enhance liquidity. As of March 31, 2014 we still have 7 million of tax credits remaining.

I will now walk you through the income statement exhibits in our press release distributed this morning, which we believe will make it far easier to understand the various expenses and adjustments for the fourth quarter ended March 31, 2014.

If you can take a moment to turn to the income statement exhibits in the press release starting with Exhibit 1, we can begin. So when you eliminate the effect of all expenses related to the discontinued subsidiaries and other one-time and non-cash expenses as reflected on the earnings press release, for the three months ended March 31, 2014 adjusted net income was $6,778,000, adjusted diluted earnings per share was $0.43 and adjusted EBITDA was $14.9 million.

Additionally for the full fiscal year 2014, when you eliminate the effect of all expenses related to discontinued subsidiaries, other one-time and non-cash expenses as reflected in the earnings press release, fiscal year 2014 adjusted net income was $21,258,000. Adjusted diluted earnings per share was $1.39 and adjusted EBITDA was $52.4 million. Exhibits 2 to 4 the reconciliation tables to reconcile the reported results to the adjusted results including net income, earnings per share and EBITDA.

We’ll now go over the adjusted net income calculation for the fourth quarter. So please turn to Exhibit 2. Starting with reported net income of $3,067,000 or $0.19 earnings per share for the three months ended March 31, 2014, we adjust for discontinued subsidiaries legal, severance and other costs of $670,000, non-cash share based compensation expense of $419,000, mark to market losses related to warrants of $3,645,000, the tax effect of the above of $1,023,000 which results in adjusted net income of $6,778,000 or $0.43 earnings per share.

In the same way, for the full fiscal year 2014, please turn to Exhibit 3, for the adjusted net income calculation for months ended March 31, 2014. Starting with reported net income of $107,359,000 or $7.01 earnings per share, for the 12 months ended March 31, 2014, we adjust for results from discontinued operations; start up related costs for new wheel hubs product line in early fiscal year 2014, discontinued subsidiaries, legal severance and other costs, non-cash share based compensation expense; mark-to-market losses related to warrants, discontinued subsidiaries of revolving credit line interest and write off of prior deferred loan fees and tax effect of the above, which results in adjusted net income of $21,258,000 or $1.39 earnings per share.

Finally we’ll go over to Exhibit 4, which is the adjusted EBITDA reconciliation. Starting with reported net income of $3,067,000 for the three months ended March 31, 2014, the adjusted results from discontinued operations, add back interest expense, income tax expense, depreciation and amortization, discontinued subsidiaries legal, severance and other costs, non-cash share based compensation expense and mark-to-market losses related to warrants which results in adjusted EBITDA of $14,940,000. Adjusted further were standard inventory revaluation write downs due to lower cost and manufacturing of $1.8 million, adjusted EBITDA was $16.7 million for the fourth quarter.

In the same way for the full fiscal year 2014, starting with reported net income of $107,359,000 the 12 months ended March 31, 2014. We adjusted for results from discontinued operations, added back interest expense, income tax expense, depreciation and amortization. Startup related cost for the new wheel hub product line in early fiscal year 2014. Discontinued subsidiaries legal, severance and other costs, non-cash share based compensation and mark-to-market losses related to warrants, resulting in adjusted EBITDA of $52,419,000. Adjusted further for standard inventory revaluation write-downs due to lower costs of manufacturing of $3 million, adjusted EBITDA was $55.4 million for the 12 months ended March 31, 2014.

I will now turn the call back to Selwyn.

Selwyn Joffe

Thank you, David. Going forward we will continue to focus on growing our business organically and working with our customers to grow their business through superior product quality and customer service. In addition to growing our existing business, we will continue to look for additional product line opportunities that can complement the needs of our customers and our operating model. We remain optimistic about our existing businesses and excited about new business opportunity.

In summary there are more than 240 million vehicles on the road and these vehicles are staying on the road longer. This translates into exciting opportunity for Motorcar Parts of America and the customers we serve. We will now open the call to questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). And our first question comes from Philip Shen from Roth Capital. Your line is open. Please go ahead sir.

Matt Riley - Roth Capital

Hi guys, its Matt Riley on for Phil. Hey, so just kind of wanted to start off with the market share. Can you talk about what kind of share gains you had in the quarter for both rotating electrical and wheel hubs? Kind of how does this trend head? And in addition wheel hubs were about $30 million of revenues in fiscal ‘14. How could this trend in ‘15?

Selwyn Joffe

The fourth quarter didn’t have significant market share gains and then I think it was more the revenue from the maturing and the ramp up of existing customers. So we expect to have -- we do have awards that will enhance that revenue base. We expect to start shipping those again later in this year. So we are optimistic that there’s going to be good growth from our existing customer business just because categories grow by growing share and we're excited with the new business opportunities we've got. So, certainly we are very excited about how the business going and by the way that also -- that same statement can be made for rotating electrical. It's the same customers, essentially no new business there but we expect we begin shipping a little bit of new business right now on rotating electrical and that should grow as the year goes on.

Matt Riley - Roth Capital

All right. Great Selwyn, that’s helpful. Just turning to margins for a moment, on a year-over-year basis margins were flat. So realistically it's positive given the inclusion of wheel hubs. With wheel hubs ramping, with this new product line being introduced, how can we think about margins in fiscal ‘15?

Selwyn Joffe

It’s a tough question because the unknown is how successful we will be with the new product line and we certainly have revenue coming out of the gate but we hope to continue to grow both, all of our product lines. And so I think we gave some conservative guidance I think in the last call of 27% to 30% or 31% if I remember but 30%. And we certainly think that that’s conservative still and hope to end on the upside of that.

Operator

Thank you. Our next question comes from Steve Dyer from Craig-Hallum. Your line is open. Please go ahead.

Steve Dyer - Craig-Hallum

So, Selwyn you I think alluded to the new product shipping I think late fiscal Q2. Can you give us any indication, maybe the initial size or the initial, how you think about it on an annualized or even a quarterly basis? And then secondly, just so we kind of have the cadence of the year down correctly, I think you had indicated nice new material wheel hub customer. Maybe when that will start shipping just so we can kind of get the revenue cadence down?

Selwyn Joffe

So I think we are ramping small amounts of new business now. That takes a little bit of time. We think that the majority of the business started kicking-in in the third quarter and then accelerated in the fourth quarter. The new product line at this point, I'd like to stay away a little bit from guidance on the revenue until we start shipping but it will be smaller than the wheel hub business but we feel like it has margin upside and nice upside opportunity there. Our supply agreements have been signed and everything is on track and we begin shipping very late second quarter. I guess just on the first quarter, late second quarter. So, I think when we look at revenues, Steve, there is so much new business and there is so much growth coming but really it’s backend loaded for the last six months and certainly in the last quarter as well.

Steve Dyer - Craig-Hallum

Okay, that helps. And then you had kind of touched on another question is -- is the new product line going to be distribution, remanufacturing and I guess the offshoot of that is are we thinking about margins more along the lines of rotating electrical or more wheel hub?

Selwyn Joffe

Again, we’re not commenting specifically on the segments. I think it is going to be a distribution based margin distribution business. And so the distribution margin model will apply. Having said that, it’s further the margins are a little higher than they are on wheel hubs.

Steve Dyer - Craig-Hallum

Okay. You mentioned kind of the accounts receivable jumping pretty significantly. Is that just purely a function of timing of stuff that you haven’t had a chance to factor yet at the end of the quarter as opposed to any kind of change in philosophy about factoring or not?

Selwyn Joffe

No, no change at all. I mean the March -- the month of March, was a record for us by probably 40%. So a lot of those receivables generally are collected and closed in about 30 days. So that reflects all the tremendous volume that we did in March.

Steve Dyer - Craig-Hallum

Okay. Last question, I’ll hop back in the queue. Operating expenses kind of $9.5 million level. Was that, is that sort of a good level? Is there anything one time or extraordinary in the quarter just given -- I don’t know if you had to pay overtime in March given the strength? How should we kind of be thinking about that quarterly run rate going forward?

Selwyn Joffe

Generally the fourth quarter operating expenses are little higher but I'm going to turn it over to David too to give you more detail on that.

David Lee

So I think if we look at this trend for fiscal ’14, we’ve seen slightly increased quarter over quarter. So the fourth quarter is not reflective of our current run rate again. It’s usually at the highest in the fourth quarters of fiscal year. So that trend should continue. Usually the fourth quarter has some additional professional fees and other type of expenses but it is not reflective of the current run rate now.

Steve Dyer - Craig-Hallum

So June will come back and some and then kind of modestly work its way higher throughout the year again?

David Lee

Yes, that’s when it trends.

Operator

Thank you. And our next question comes from Jimmy Baker from B. Riley & Company. Your line is open please go ahead.

Jimmy Baker - B. Riley & Co.

So Selwyn just really almost wrapping with fiscal first quarter here, can you maybe just talk about and I guess particularly in light of the working tail wind and very strong [ph] March what you are seeing or what you saw in April and May? Did your customers pull back at all as the weather moderated or are you continuing to see double digit year-over-year growth in rotating electrical continue?

Selwyn Joffe

The question was a little muffled Jimmy but I think I got to just a bit. To comment perhaps more on the first quarter revenues, generally we came off such a strong fourth quarter and so I think inventory is settling. I think the fundamentals of our customer sales are good without commenting on anyone specifically. I think there is some adjusting of inventory levels a little bit but I don’t see -- we think our first quarter again will reflect probably around 20% in growth over the prior first quarter. I don’t see anything fundamental. I think that the growth rates will grow from there as we go down through the year.

The weather, I would have expected a bigger lift from the weather than I am seeing to be honest but time will tell I think. It’s still a little bit of early. I think we saw sort of some -- in rotating electrical we saw some acceleration of demand I think towards the end of the quarter and then so I think it’s normalizing out now. And I think deferred maintenance -- these parts are under excess stress when you have extreme cold like we had and so I expect that over the year -- that we should see increased replacement rates, that we haven’t seen that yet. It’s still a little bit early for that.

Jimmy Baker - B. Riley & Co.

Okay, understood. And then most of my wheel hub questions have been answered. But maybe could you just share with us how many customers you’re shifting wheel hubs to today? I mean maybe just update us on -- on the last call you talked about the potential to more than double that wheel hub business. Any update kind of the view on the timing of that, like when you would get to double -- let's say the nearly $50 million revenue run rate you exited this fiscal year on?

Selwyn Joffe

Well I think -- in terms of number of customers, we sell a lot of customers. I don’t know the exact number off the top of my head. We sell pretty much most of the industry on rotating electrical. On wheel hubs again I don’t want to get into exact number but we certain have grown our customer base slowly but surely and we have a significant new customer starting in the near future. And in terms of when we’ll double that business, we’re working hard at it. I think we’re going to see some very, very strong double digit growth this year. So it’ll be so elusive but I just don’t have definitive numbers I can give you on that.

Jimmy Baker - B. Riley & Co.

Okay, fair enough. And then just lastly, since (indiscernible), can you just give us, maybe this is for David but free cash flow for full fiscal '14 and then as we look towards fiscal '15 any unusual items or meaningful working capital that should drive a deviation from net income to free cash flow?

Selwyn Joffe

Yes. I’ll let David answer. But in general we had again very strong growth. So this Company in a very stable environment generates great cash. We have reinvested capital into inventory and obviously receivables based on when you hit the cycle but -- and that growth is going to require additional working capital. But I’ll turn it over to David for more detail.

David Lee

So far the 12 months ended fiscal '14, cash flows provided by operations was a $13.3 million. That did include $16.5 million in income tax refunds. So there was a working capital, use of cash primarily for inventory as well as AR growth and as Selwyn reiterated, we are growing our business. So as we grow business, what I need to invest our free cash flow back into working capital to grow the business successfully.

Selwyn Joffe

And digital inventory substantially during the year. And that’s too fold -- is number one, we’re ramping up for new business and number two is, our business has grown and number three is that our fill rates continue to be excellent.

David Lee

And we did at the new product line during the fiscal year.

Selwyn Joffe

And we added new product line and we added another new product line, which inventories have really started coming in for.

Jimmy Baker - B. Riley & Co.

Okay. So I lied I said that was my last question. Can you give us the initial inventory outlay that you have on a cash basis to bring on that new product line?

Selwyn Joffe

Well, again I think that the net payback on that investment is two years. So I think our return on invested capital is going to be very, very high. I think we’d rather stay away from exact inventory levels, because we haven’t given any guidance on revenue for that product line. But the return on investment capital is very strong once again. And certainly that should show as we should we group a 100% of our capital investment within two years. And hopefully we’ll beat that.

Operator

Thank you. And we have a follow-up from Steve Dyer from Craig-Hallum. Your line is open, please go ahead.

Steve Dyer - Craig-Hallum

Selwyn I just wanted to clarify one thing you said. You had indicated that you expect revenue growth accelerating, up kind of above that first quarter 20% level throughout the rest of the year. Did you mean that the actual numbers are getting bigger or that actually 20% growth is going to be faster than that throughout the rest of the year?

Selwyn Joffe

Let see what I meant. That’s a good question. It is I think on a comparable quarter-over-quarter you know same year the rates should increase as we get through the end of the year, as we launched the new products to the new customers.

Steve Dyer - Craig-Hallum

So that implies kind of more than 20% that recorded throughout the year?

Selwyn Joffe

Yes. You know I don’t want to get ahead of ourselves a little bit, but I would, I rather be on a conservative side of that.

Steve Dyer - Craig-Hallum

Fair enough.

Selwyn Joffe

I mean that’s it, I mean periodically that’s a possibility but there’s a lot of new, again a lot of new growth and it’s difficult for us to forecast that way in there.

Operator

Thank you. And I’m showing no further questions at this time gentlemen.

Selwyn Joffe

Okay. Well, we appreciate your continued support everybody. And we thank you again for joining us for the call. Not too long before we start talking about the first quarter, we’ll give you more updates on developments. But again we’re optimistic about the outlook and we look forward to our next call in August. Thank you very much.

Operator

Ladies and gentlemen thank you for participating in today’s conference, this concludes our program. You may all disconnect and have a wonderful day.

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