Motorcar Parts of America (MPAA) Q1 2022 Earnings Call Transcript

Motorcar Parts of America (MPAA -0.18%)
Q1 2022 Earnings Call
Aug 09, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Motorcar Parts of America's fiscal 2022 first-quarter conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I'd now like to hand the conference over to your speaker, Gary Maier, vice president of investor relations.

Please go ahead.

Gary Maier -- Investor Relations

Thanks, Christina. Thanks, everyone, for joining us today for our fiscal 2022 first-quarter conference call. Before we begin, 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 statement included in today's press release.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during 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, I'd like to begin the call and turn the call over to Selwyn.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

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, we achieved record sales for our fiscal first quarter.

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 about our 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 variants and challenges impacting the supply chain, both of which don't really require much explanation given the extent of daily use coverage of the situation. Let's just say the challenges are real from a social and business 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 to customer order patterns, but the fiscal first quarter usually being somewhat less robust and the second and fourth quarter relatively stronger. Clearly, our strong fiscal first-quarter sales performance, despite associated cover-related challenges, seems to have changed 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 are returning to the roads, and demand for automotive hot parts is as strong as ever. As I mentioned during our call in June, we are benefiting from our investments from multi-growth platforms in our hard parts business.

We expect each of our product lines to grow, and we are focused on meeting the increased demand in all categories. Our newest product line, brake calipers, continues to gain traction, it skews the pun. And we are focused on meeting the increasing demand in this important category, taking full advantage of our state-of-the-art brake caliper remanufacturing facilities and infrastructure, including core sorting and distribution. The market for our current hard parts categories represents more than $6 billion at 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 aftermarket parts replacement industries well beyond electric vehicles becoming mainstream. You've heard me say before that people are keeping their vehicles longer. Used car sales continue to climb to record levels resulting in increased miles driven by OKVs, our kind of vehicles.

Obviously, this bodes well for the aftermarket parts replacement industry and our non-discretionary product offerings. I want to sound like a broken record, but as vehicles age, the rate of replacement of parts increases substantially. Cars in the zero- to three-year age group have a replacement rate for alternators of 2.42%, compared with 6.65% in the 12-year 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 dependence on outsourcing.

While COVID and related supply chain challenges continue in Malaysia, we see tremendous opportunities to leverage our presence in Malaysia and support our customers. With regard to our emerging presence within the electric vehicle marketplace, we remain enthusiastic about the outlook. Encouraged by new strategic partnerships, engineering strength, industry-leading technology, and the significant opportunities is driving electric vehicle driving options evolve. While we don't see -- while we don't segment report, let me just make a few comments about this exciting business.

As many of you know, we acquired the D&V Electronics business in 2017, in part to complement our rotating electrical business and offer our retail customers a superior testing product for alternators and starters that was currently available. Sales are increasing, and we are gaining renewed interest from our retail customers as deferred spending due to the pandemic resumes. Demand for test equipment related to performance, endurance, and production of electric motors, inverters, and belt-start 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.

We expect this business to start generating profits beginning in this current fiscal 2022 second quarter. In addition, our vision is to offer EV manufacturers, contract testing services via our newly established Detroit Technical Center. And this also offers 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 for aftermarket parts and offer superior parts and solutions to our customers and consumers.

Certainly, there are extraordinary challenges facing the aftermarket industry today, including supply chain, freight, and 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 are short-term issues, but there is still much uncertainty in the supply chain. We are working hard with our global team to manage production while working with our suppliers and logistics providers to address the challenges.

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 our world today and tomorrow. Our footprint for the future has become a reality, and we are encouraged by the strong demand for automotive replacement parts despite global code 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, high 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 our brake caliper production, pricing initiatives, and other product line activities. I will now turn the floor over to David to review the results for the fiscal 2022 first quarter.

David Lee -- Chief Financial Officer

Thank you, Selwyn. To begin, I encourage everyone to read the 8-K filed this morning, with respect to our June 30th, 2021 earnings press release for more detailed explanations of the results. For information about the items that impacted the results, see Exhibits 1, 2, 3 of the press release. Let me take a moment to review the financial highlights, including record sales for a first quarter.

Net sales for the fiscal '22 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 two-year comparison from the June 2019 pre-corporate first quarter, net sales increased by 36.5% or approximately $40 million. Gross profit for the fiscal '22 first quarter was 23.6 million, compared with 13.4 million a year earlier. Gross profit as a percentage of net sales for the fiscal '22 first quarter was 15.8%, compared with 14% a year earlier.

Gross margin for the fiscal '22 first quarter was negatively impacted by an aggregate of 7% by the following: 1.3% for great caliber start-up costs and relocation transition expenses; 3.2% due to higher freight costs and expenses related to COVID; 1.7% noncash core premium amortization impacting sales; 0.7% non-cash revaluation of cores on customer shelf; and 0.1% customer allowances related to new business. Let me provide a little more color on the factors impacting gross margin. Brake caliper setup 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 this past fiscal year and have focused on increasing production of brake calipers, including core sorting and related activities to meet the current and future demand.

First-quarter start-up and transition expenses were significantly reduced by approximately 50% to 2 million from fiscal '21 levels and 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 '22 first quarter due to a shortage of freight and supply chain inefficiencies caused by COVID, as Selwyn noted earlier. With regard to additional corporate-related expenses, we have addressed health and safety initiatives that also impacted gross margin. Fortunately, these corporate-related expenses decreased.

As a point of reference, fiscal first-quarter expenses were approximately 318,000 versus 1.84 million for the prior-year first quarter. Core premium amortization and revaluation of cores on customers shown that impacted gross margins are noncash and noneconomic. For a complete summary of items impacting gross profit please Exhibit 2 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 costs for raw materials and supplies. I should 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 have been implemented and will be realized 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 gain for the prior-year period of 4.8 million from the foreign exchange impact of lease liabilities and forward contracts, compared with a smaller gain of 2.5 million for the current year's first quarter. The remaining 2.5 million increase on a year-over-year basis was primarily due to salary reductions in the prior year in response to the COVID-19 pandemic and increased commissions, margin-related, and travel expenses. Interest expense was 3.9 million for the fiscal first quarter, compared with 4.4 million last year. The decrease in interest expense was primarily due to lower interest rates and lower net debt.

Income tax expense for the first quarter was 947,000, compared with income tax benefit of 1 million for the prior-year period. I should mention that the effective tax rate for the three months ended June 30, 2021, 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 '22 first quarter was 861,000 or $0.04 per diluted share compared with a net loss of 3 million or $0.16 per share a year ago.

Additional details of items impacting net income are in Exhibit 1 in this morning's earnings press release. Net cash used in operating activities during the fiscal year '22 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 as well as anticipated business growth in fiscal '22. This compares with cash provided by operating activities of 22.4 million for the prior fiscal year's first quarter. Net debt was 97.6 million at June 30th, 2021, compared with 88.9 million at March 31st, 2021.

As you know, there are various methods to calculate return on invested capital. For our purposes, we calculate ROIC by taking operating income and adding back non-cash expenses and certain one-time expenses. We believe this metric, considered together with GAAP measures, provides 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 and net debt balance of 398 million, resulting in a 22.1% pre-tax return on invested capital.

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 the new and existing product lines as the benefits of our strategic expansion are more fully realized. As I mentioned, at June 30, 2021, our net debt was approximately 97.6 million. Total cash and availability on the revolving credit facility was approximately 120 million at June 30th, 2021, based on a total of 238.6 million revolving credit facility and subject to certain limitations. At June 30, 2021, the company had approximately 904 million in total assets.

Current assets were 441 million and current liabilities worth of 336 million. During the fiscal first quarter, the company extended its credit facility with PNC Bank for five years through May of 2026, including amendments, which further increased the company's strong liquidity base. For the reconciliation of items that impact results and non-GAAP financial measures, please refer to Exhibits 1 to 3 in this morning's earnings press release. I will now hand the call for questions, and Selwyn will then provide some closing remarks.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line are Sarkis Sherbetchyan with B Riley Securities.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Hi. Good morning, and thank you for taking my question here.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Good morning.

David Lee -- Chief Financial Officer

Good morning.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Just want to start off with a question here on the orders. 1Q, obviously, very strong. Just wondering if customers pulled purchases ahead maybe to the detriment of the following quarters? Or do you see the order strength continuing based on kind of the customer demand you're seeing out there?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

I think that the first-quarter orders were pulled forward somewhat. Having said that, the second quarter will -- looks like it will continue to be strong. But definitely, what we're seeing are two things, at least in the first quarter is, number one, our break caliper business has grown dramatically and seasonality for brake calipers is generally would be in our fourth and first quarters a little bit in the second, mostly in the first, which we haven't really seen as much as in the past. And then we definitely see some fast ordering from our customers because the demand of the register has been very strong.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Got it. And in regards to kind of the brake calipers business, I'm not sure if you've provided a number or as far as kind of the annualized sales level that you've accomplished so far? Any updates there?

David Lee -- Chief Financial Officer

So like I speak to that, our 10-Q that we'll file later today, we do break out the product mix. So the brakes and related is about 16% of total sales compared to a lower percentage for the previous periods.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Great. Thanks for that. And I just wanted to also ask, at what point do you think it's appropriate to provide the annual guide. I think the last call, you guys kind of held off.

Just wanted to see if at some point you're kind of looking to provide an annual target or it's kind of too soon. Thank you.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

It's a little -- it's still so uncertain. I mean with the delta variant out there, and I mean, it's just hard to tell. And I mean, even we're as robust as we've been in a long time. I mean I don't know guidance on the upside or the downside.

I mean I just think it's just a little too unpredictable right now. But the only -- the input I would give you is that the first month of the second quarter was the strong start. That's as of now.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Thanks. I'll hop back in the queue.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

And your next question comes from the line of Matt Koranda with ROTH Capital.

Matt Koranda -- Roth Capital -- Analyst

Hey, guys. Good morning. Thanks. Wondering, David, if you could just provide a further breakdown revenue by rotating electrical wheel out and since you have a products would be helpful.

David Lee -- Chief Financial Officer

Absolutely. So for the first quarter, rotating electrical was about 67%; we'll have 14%, as I mentioned, breaks and related 16% and the other 3%.

Matt Koranda -- Roth Capital -- Analyst

OK. Helpful. And then just on the break products, maybe following on from the earlier line of questioning. It does look like, I mean, 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 '22, just given the seasonality that you mentioned, but the strength in order flow?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

There's two factors. Our market share continues to grow and the volumes are coming to their own on the existing shares. So it's I think the fourth quarter should be a very strong quarter as well for brake calipers this year. And overall, the year will be strong.

I think will be stronger. I mean, calipers, but I think the volumes that you'll see will be the first two quarters and the fourth quarter for calipers. We should see -- as we get to the fourth quarter, we should see successive growth, even above this quarter's volume, yeah.

Matt Koranda -- Roth Capital -- Analyst

OK. All right. That's helpful, one. And then just on the COVID-related expenses within cost of goods.

So appreciate the breakout, and you guys mentioned, I think, close to 3 million of increased freight costs related to COVID. So -- just wanted to get a little bit more detail on sort of how you allocate the higher freight cost to 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 visibility is kind of tough.

But just wanted to get a sense for how much more headwind we've got to experience for the next quarter or so.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

So the freight let me try and start, and then David can take over the detail. The freight headwinds, all the incremental cost, I believe, is either directly or indirectly related to COVID, I mean, where capacity was pulled back dramatically, and then demand went up exponentially without capacity catching up. And so what you saw historically freight costs could have been as low as $2,000 a container coming out of China to today, I mean, I've seen prices as high as $18,000 a container. So you're looking at 900% increase in those costs.

I mean is it all COVID or are there 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. And I think it's going to go on for a few quarters at least. But at some point, that normalizes, I mean, the global capitalistic tendencies to provide capacity when capacity is needed.

And as that happens, I think freight will come down again. But we'll -- we're going to have to wait and see. And you have inflation in material costs and inflation in labor, but all of that we expect -- we have to pass through prices around the entire industry is doing that. We have done that hasn't not reflected our numbers yet.

But it's coming out. Our direct out-of-pocket for COVID has come down in terms of just the PPE-type stuff. Again, with the delta variant, we'll have to wait and see how that all unfolds. But right now, we continue -- Mexico continues to operate efficiently.

We have had challenges in our Malaysia facility, the country of Malaysia has had some the specific challenges a little bit doing a phenomenal job of catching up vaccinations right now. And so we're starting to reopen in Malaysia. Let's hope that continues. Chinese varies also still going on.

I mean, with China and the COVID side, too, we'll have to see how that unfolds.

Matt Koranda -- Roth Capital -- Analyst

OK. Helpful. Last one, I guess, you mentioned labor cost pressure kind of starting to impact a little bit more, important 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 in the Mexico manufacturing base? And or some of the elements or levers that you have tools that you have at your disposal to sort of counteract some of the labor inflation you're seeing?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Well, again, mostly Mexico, I mean, that's where the majority of our labor force is have, I think, a 35% increase in the minimum wage, federal minimum wage in Mexico earlier this year. So that contributes to some of the challenges. Again, that's part of what we use when we compute passing through our price increases, which should start reflecting at the end of this quarter.

Matt Koranda -- Roth Capital -- Analyst

OK. That's it for me. I'll leave it there. Thanks.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thanks. Thank you.

Operator

[Operator instructions] Your next question comes from the line of Brian Nagel with Oppenheimer.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Hi. Good afternoon.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Hey, Brian.

David Lee -- Chief Financial Officer

Hi.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Still good morning to you guys, sorry.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Good, whatever it is.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

So a bit of a follow-up to a couple of the prior questions. But just, Selwyn, very nice start of the fiscal year here with sales and you talked about continued strength into your fiscal second quarter. So my question I have is I'm trying to get is just what do you view as underlying sustainability as the economies pulling, hopefully pulling away from the COVID crisis. So maybe rather question would be you work kind of geographically across the United States, some parts of the country, further from the COVID crisis and others.

Are you seeing any regional differences in demand transfer products?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Well, I think the Northeast is probably slightly ahead of everywhere else. But I mean, there's demand everywhere, used car lots are empty. And those cars are on the road. And then again, a lot of those cars are older, and they need a lot of maintenance.

I mean we see while many people talk about stimulus checks certainly are not being spent on a nondiscretionary alternate or a start-up. But what's happening is you've got all these old cars that were certainly part of the registration park car park, but they were sitting in parking lots. And all of these cars are being used. And so I think you -- certainly on non-discretionary items like ours, it has spiked.

Now comparatives are going to be tougher as we go through the year because last year, we had stimulus and we had really strong quarters. But having said that, I think that this is going to be a real strong growth year for us. I think the first six months is going to be up over the last year and the back six months is going to be strong. So lots of activity in the back six months and a lot of new opportunities opening up there as well.

And we're excited about our electric vehicle opportunities. So I think it's a sustainable. Again, I don't think 59% is the -- 53% is what you should be assuming for growth, but we're going to have double-digit growth.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Got it. That's helpful. Then my second question is also a follow-up, just with respect to the supply disruptions, particularly those tied to shipping or containers. We're hearing this more and more.

I mean pretty much of company I talk to now is to some extent talking about. You mentioned in your prepared comments, but I guess as we look at the financials, maybe it's more of a question for David. But if you look at the financials here in fiscal Q1, is there a way to really size where we'd see these impacts of shipping disruptions. And then second follow-up to that would be how should we think about these extra costs as we push into Q2 and potentially beyond?

David Lee -- Chief Financial Officer

So the supply chain that we've identified items that impacted the results, as Selwyn mentioned, is freight. We've had additional inefficiencies in the supply chain that we mentioned. We also have the decreasing specific PP 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. But we're working very closely to monitor.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Maybe, David, you can get the dollars you mentioned earlier in your prepared remarks and on what those were.

David Lee -- Chief Financial Officer

Yes. So for the impact on gross profit, with about 4.8 million of increased expenses related to COVID, the majority of that is going to be the freight cost.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yup. Freight is a challenge right now.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Yup. And I guess just that 4.8 million gave us selling that. Is there a thought as to where that would be in Q2, I mean, you recognize it's not as apples to apples or quarter to quarter. But is there a thought to where that 4.8 million would be in Q2?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

It probably will be similar. I mean, if the volumes are similar. So I'm expecting it to be similar. Again, by the end of Q2, we should have mitigated some of that because our price increases will start reflecting.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Thank you. Appreciate the color.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

And your last question comes from the line of Scott Stember with CL King.

Scott Stember -- C.L. King -- Analyst

Good morning slash afternoon, guys.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you. Morning, afternoon.

Scott Stember -- C.L. King -- Analyst

I just thinking at the gross margin from an adjusted basis after the adjustments that you or the impact items that you mentioned in the release and you did 22 to eight, it's up versus last year, but last year's numbers, obviously, there was significant inefficiencies and shutdown from COVID. But if I look at it versus two years ago, a little over for the first quarter over 24%. What's the delta there? Is it things like raw materials and other related supply chain issues and labor? Is that really the different thing? I'm just trying to get a sense of also -- I know you guys are not guiding, but if you could just give a framework of where a peak run rate of margins, gross margin could be for the year.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yes. So I mean, we don't adjust for labor. So labor is in that number for sure. And we don't adjust for what's recurring.

I mean, we are trying to identify the unusual COVID.

David Lee -- Chief Financial Officer

In addition, I mentioned the raw material, the supplies, the inflationary costs, those are impacting the margins. So as we've been mentioning, the price increases are taking effect this quarter, to mitigate offset some of those costs. So that's excluding the further price increases.

Scott Stember -- C.L. King -- Analyst

Yes, I just wanted to see if there was anything else structural in there. And it sounds as if when the price increases go through in the next quarter or so that should certainly cover that, right?

David Lee -- Chief Financial Officer

Yeah.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. And I think the other thing to start to mention is, over time, you got to realize the breakout of facility is very new. And so -- and a lot of the expanded boosted production is new in Mexico. And we have a lot of new production in wheel hubs as well.

These factories over time, get far more efficient as they mature. So it doesn't go from A to Z, it goes slowly through the alphabet in terms of its progress. But we should see more efficiencies as we get more mature in our production facilities.

Scott Stember -- C.L. King -- Analyst

Yeah. And to the question about the margins, I guess, I mean you kind of said that sales double digits, at least it looks like for the year or just in general. But what about the margin? Where could we be -- is this just a range where you think we can get back to on gross margins?

David Lee -- Chief Financial Officer

With the price increases, we should back into at least the mid-20s. But again, we're not giving guidance specifically just giving you a flavor for what the price increase was to produce them.

Scott Stember -- C.L. King -- Analyst

Got it. No, that's good. And just lastly, it sounds like you said that there was some I guess, seasonally large orders that were -- you probably didn't expect to happen this quarter and it did. And you also talked about stimulus checks.

And I was just trying to get a little more flavor on that. I would think that with the do-it-for-me side starting to really perk up here, that wouldn't be as impacted by stemless checks. Could you just talk about that?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. I agree with you. And I use those words that stimulus because that's what the industry has been talking about that. I mean when you talk about non-discretionary items, I'm not sure the stimulus per se does it, but it's sort of the environment of people having more capital and doing more things.

I think the fundamental driver for us is number of used cars that are being utilized as opposed to being parked right now and hot weather. I mean both of those are really driving demand, and we continue to see strong demand. Again, there's some seasonality and there's some change in order patterns. But overall, it continues to be very, very strong.

Scott Stember -- C.L. King -- Analyst

Yeah. And just related to the hot weather, I know rotating electric definitely benefits, which -- is it starters or alternators that benefit from the extreme heat?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Both. Both. I mean, generally start us benefit more from cold weather, but both when that engine compartment gets hot and you've got electrical items and you get the benefit. I mean, alternately, there's a little more from the heat and starts a little less from the heat and it switches when it comes to the cold weather.

Scott Stember -- C.L. King -- Analyst

Got it. That's all I have. Thanks.

Thank you.

Operator

And you have another question from the line of Matt Koranda with ROTH Capital.

Matt Koranda -- Roth Capital -- Analyst

Hey, guys. Thanks for the follow-up. Just wanted to touch on the price increase. And I may have missed it earlier, but could you just touch on the timing of the price increases that were put through.

And then if you could help us understand it by maybe characterizing a percent of your SKUs that saw where you took pricing and then rate increases on average would be very helpful.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. I can't give you as much granularity as I'm sure you would love. But just because for competitive purposes, and we can't talk specifically about price increases. But our intent is clearly to mitigate freight and labor costs that I talked about.

We should see that beginning -- it will reflect a little bit in this quarter, in the second quarter and certainly fully in the third quarter.

Matt Koranda -- Roth Capital -- Analyst

OK. Got it. Thank you.

Operator

You have no further questions at this time. I'll now turn it back to management for any closing remarks.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Great. I'd like to take a few moments to discuss the outlook for our business. While there are very -- many variables in the world that we cannot control, we do control our own strategy. And I'm excited to outline what our new capacity allows us to do and where we are taking the company today and in the future.

We are extremely focused on our core hard parts aftermarket 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 our footprint of the future, which is now a footprint of today and matures, we will see increases in productivity, which will result in reduced costs and better margins. While there are many variables in costs 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 our hard parts business and diagnostic business in both internal combustion engines and electrical vehicles is picking up momentum and we expect positive EBITDA from both the year along with those diagnostic businesses 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 linear scaling of capital expenditures and enables our customer base to get quicker and more efficient results and feedback with less capital outlay. Our vision group is also working diligently on numerous technologies that will place us in the EV power system, either a software or licensed IP.

While the world of electrification is fast developing, we 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 the growth rates in our business. In closing, I want to thank all 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 are working diligently to get even more of our employees and their family members vaccinated. For the most part, our corporate team is continuing to work remotely that we remain committed to gradually and safely returning our team back to the office as conditions permit. As a result of everyone's contributions, our operations have continued largely uninterrupted and I'm extremely proud of their work in our company. In summary, our investments are bearing fruits.

And we have a meaningful opportunity to enhance shareholder value in a dynamic $130 billion automotive aftermarket industry and the emerging electric vehicle industry. We are product of our more than 50-year history in the aftermarket industry and we're excited about our emerging presence in the electric vehicle space. And all of us are 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 our fiscal 2022 second-quarter conference call in November and at investor conferences and hopefully in person in the future. Thank you.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Gary Maier -- Investor Relations

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

David Lee -- Chief Financial Officer

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Matt Koranda -- Roth Capital -- Analyst

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Scott Stember -- C.L. King -- Analyst

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