Today it is time to take a deep look at the remanufacturing specialist Motorcar Parts of America (NASDAQ: MPAA ), and contrary to what one might think, its business model does notWith a degree in Finance and Accounting and previous experience in financial advisory, I use The Sharpe Quest to share my path as an independent investor and market analyst. My approach mixes long-term conviction holdings with tactical sector rotations, driven by the belief that investing isn’t about being right, it’s about making ...

General Information [Filing Information](index=1&type=section&id=Filing%20Information) The registrant, Motorcar Parts of America, Inc., an accelerated filer, has filed all required reports during the preceding 12 months - The registrant is Motorcar Parts of America, Inc., an accelerated filer, and has filed all required reports during the preceding 12 months[3](index=3&type=chunk)[4](index=4&type=chunk) | Title of each class | Trading symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.01 per share | MPAA | The Nasdaq Global Select Market | - There were **19,352,135 shares** of Common Stock outstanding at August 4, 2025[4](index=4&type=chunk) [Glossary](index=3&type=section&id=GLOSSARY) This section defines key terms frequently used throughout the report, specifically 'Used Core' and 'Remanufactured Core,' which are central to the company's remanufacturing process and inventory management - A 'Used Core' is a previously used original equipment automobile part, obtained primarily through core exchange programs or from core brokers, and serves as raw material for remanufacturing[9](index=9&type=chunk) - A 'Remanufactured Core' is a Used Core that has undergone the remanufacturing process, involving breakdown, replacement of non-reusable components, and reassembly into a new part[10](index=10&type=chunk) PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Motorcar Parts of America, Inc. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining the accounting policies and specific line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | ASSETS (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Total current assets | $519,382 | $511,471 | | TOTAL ASSETS | $973,350 | $957,636 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | | | | Total current liabilities | $360,616 | $351,025 | | Total liabilities | $713,237 | $699,937 | | Total shareholders' equity | $260,113 | $257,699 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $973,350 | $957,636 | - Total assets increased by **$15.7 million** from March 31, 2025, to June 30, 2025, primarily driven by increases in current assets and plant and equipment[14](index=14&type=chunk) - Total liabilities increased by **$13.3 million**, mainly due to an increase in contract liabilities, while total shareholders' equity saw a **$2.4 million** increase[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net sales | $188,364 | $169,887 | | Cost of goods sold | $154,447 | $140,713 | | Gross profit | $33,917 | $29,174 | | Operating income (loss) | $20,069 | $(6,456) | | Net income (loss) | $3,042 | $(18,085) | | Basic net income (loss) per share | $0.16 | $(0.92) | | Diluted net income (loss) per share | $0.15 | $(0.92) | - Net sales increased by **10.9%** year-over-year, from **$169.9 million** in Q1 2024 to **$188.4 million** in Q1 2025[16](index=16&type=chunk) - The company reported a net income of **$3.042 million** in Q1 2025, a significant improvement from a net loss of **$18.085 million** in Q1 2024[16](index=16&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $3,042 | $(18,085) | | Foreign currency translation gain (loss) | $888 | $(675) | | Comprehensive income (loss) | $3,930 | $(18,760) | - Comprehensive income improved significantly from a loss of **$18.76 million** in Q1 2024 to a gain of **$3.93 million** in Q1 2025, primarily driven by the turnaround in net income and a foreign currency translation gain[19](index=19&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) | (in thousands) | Balance at March 31, 2025 | Balance at June 30, 2025 | | :------------- | :------------------------ | :----------------------- | | Total Shareholders' Equity | $257,699 | $260,113 | - Total shareholders' equity increased by **$2.414 million** from March 31, 2025, to June 30, 2025, primarily due to net income and share-based compensation expense, partially offset by share repurchases[21](index=21&type=chunk) - The company repurchased and cancelled **197,796 shares** of common stock for **$1.966 million** during the quarter[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $10,028 | $(20,841) | | Net cash used in investing activities | $(806) | $(512) | | Net cash (used in) provided by financing activities | $(6,778) | $15,166 | | Net increase (decrease) in cash and cash equivalents | $3,050 | $(6,443) | | Cash and cash equivalents — End of period | $12,479 | $7,531 | - Operating activities generated **$10.028 million** in cash in Q1 2025, a significant improvement from a cash outflow of **$20.841 million** in Q1 2024[23](index=23&type=chunk) - Cash used in financing activities was **$6.778 million** in Q1 2025, compared to cash provided of **$15.166 million** in Q1 2024, primarily due to net repayments of revolving loan and share repurchases[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Company Background and Organization](index=10&type=section&id=Note%201.%20Company%20Background%20and%20Organization) This note outlines Motorcar Parts of America, Inc.'s business as a leading supplier of automotive aftermarket replacement parts and test solutions, serving North American retail chain stores, warehouse distributors, and major automobile manufacturers - MPA is a leading supplier of automotive aftermarket non-discretionary replacement parts and test solutions/diagnostic equipment[26](index=26&type=chunk) - Products include light and heavy-duty rotating electrical products, wheel hub assemblies, brake-related products, turbochargers, and test solutions for combustion and electric vehicles[26](index=26&type=chunk) [Note 2. Basis of Presentation and New Accounting Pronouncements](index=10&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20New%20Accounting%20Pronouncements) This note explains that the unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions - Financial statements are prepared in accordance with U.S. GAAP for interim information and Form 10-Q instructions[27](index=27&type=chunk) - The company is evaluating the impact of several new FASB ASUs, including ASU 2023-06 (Disclosure Improvements), ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Disaggregation of Income Statement Expenses), and ASU 2024-04 (Debt with Conversion and Other Options), with effective dates ranging from fiscal years beginning after December 2024 to December 2026[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 3. Accounts Receivable — Net](index=11&type=section&id=Note%203.%20Accounts%20Receivable%20%E2%80%94%20Net) This note provides a breakdown of the company's accounts receivable, net of allowances for credit losses, customer payment discrepancies, and customer returns | Accounts receivable - net (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------- | :------------ | :------------- | | Accounts receivable — trade | $109,041 | $113,807 | | Allowance for credit losses | $(264) | $(207) | | Customer payment discrepancies | $(2,015) | $(1,765) | | Customer returns RGA issued | $(21,230) | $(20,771) | | Total accounts receivable — net | $85,532 | $91,064 | - Total accounts receivable — net decreased by **$5.532 million** from **$91.064 million** at March 31, 2025, to **$85.532 million** at June 30, 2025[34](index=34&type=chunk) [Note 4. Inventory — Net](index=12&type=section&id=Note%204.%20Inventory%20%E2%80%94%20Net) This note details the composition of the company's inventory, including raw materials, work-in-process, and finished goods, net of an allowance for excess and obsolete inventory | Inventory — net (in thousands) | June 30, 2025 | March 31, 2025 | | :----------------------------- | :------------ | :------------- | | Raw materials | $154,325 | $150,274 | | Work-in-process | $8,917 | $7,821 | | Finished goods | $204,604 | $202,078 | | Less allowance for excess and obsolete inventory | $(19,566) | $(18,964) | | Inventory unreturned | $18,492 | $18,460 | | Total inventory — net | $366,772 | $359,669 | - Total inventory — net increased by **$7.103 million** from **$359.669 million** at March 31, 2025, to **$366.772 million** at June 30, 2025[35](index=35&type=chunk) [Note 5. Contract Assets](index=12&type=section&id=Note%205.%20Contract%20Assets) This note provides a breakdown of the company's short-term and long-term contract assets, which primarily include cores expected to be returned by customers, core premiums, and remanufactured cores held at customer locations | Contract assets (in thousands) | June 30, 2025 | March 31, 2025 | | :----------------------------- | :------------ | :------------- | | Total short-term contract assets | $30,329 | $29,606 | | Total long-term contract assets | $340,529 | $336,268 | - The carrying value of Remanufactured Cores held at customers' locations was reduced by **$1.026 million** for the three months ended June 30, 2025, compared to **$394 thousand** for the same period in 2024[36](index=36&type=chunk) [Note 6. Significant Customer and Other Information](index=13&type=section&id=Note%206.%20Significant%20Customer%20and%20Other%20Information) This note discloses significant customer concentrations for net sales and accounts receivable, as well as product line concentrations | Net sales concentration | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Customer A | 39% | 40% | | Customer B | 24% | 17% | | Customer C | 22% | 28% | | Accounts receivable - trade concentration | June 30, 2025 | March 31, 2025 | | :-------------------------------------- | :------------ | :------------- | | Customer A | 48% | 41% | | Customer B | 23% | 26% | | Customer C | 0% | 7% | | Product line concentration | June 30, 2025 | June 30, 2024 | | :------------------------- | :------------ | :------------ | | Rotating electrical products | 66% | 65% | | Brake-related products | 23% | 24% | | Wheel hub products | 6% | 7% | | Other products | 5% | 4% | [Note 7. Debt](index=13&type=section&id=Note%207.%20Debt) This note details the company's debt structure, including its senior secured Credit Facility and Convertible Notes - The company has a **$268.62 million** senior secured Credit Facility, including a **$238.62 million** Revolving Facility and a **$30 million** Term Loan facility (repaid in FY2024), maturing on December 12, 2028[42](index=42&type=chunk) | Revolving Facility Outstanding (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------------------------------- | :------------ | :------------- | | Outstanding balance | $86,856 | $90,787 | | Available under Revolving Facility | $134,341 | N/A | | Interest rate | 7.40% | 7.46% | - Convertible Notes of **$32 million** principal amount, due 2029, bear **10.0%** annual interest (compounded annually, payable in-kind or cash), with an effective interest rate of **18.3%** as of June 30, 2025[45](index=45&type=chunk) - A Compound Net Derivative Liability related to the Convertible Notes resulted in a non-cash loss of **$1.79 million** in Q1 2025, compared to a gain of **$2.58 million** in Q1 2024[47](index=47&type=chunk) [Note 8. Contract Liabilities](index=15&type=section&id=Note%208.%20Contract%20Liabilities) This note details the company's short-term and long-term contract liabilities, which include customer allowances, core returns accruals, core bank liability, and customer deposits | Contract liabilities (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Total short-term contract liabilities | $49,396 | $38,158 | | Total long-term contract liabilities | $240,021 | $241,404 | - Short-term contract liabilities increased by **$11.238 million**, primarily due to a significant increase in core bank liability from **$1.795 million** to **$11.399 million**[50](index=50&type=chunk) [Note 9. Leases](index=15&type=section&id=Note%209.%20Leases) This note provides detailed information on the company's operating and finance leases, including balance sheet classification, lease costs, and maturity schedules - The company recorded a non-cash gain of **$4.002 million** from the remeasurement of foreign currency-denominated lease liabilities in Q1 2025, compared to a loss of **$5.709 million** in Q1 2024[51](index=51&type=chunk) - Cessation of manufacturing at the Torrance, California facility required reassessment of the right-of-use asset, with no impairment identified at June 30, 2025[52](index=52&type=chunk) | Lease Costs (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | | Operating lease cost | $3,490 | $3,759 | | Finance lease cost | $429 | $409 | | Total lease cost | $4,268 | $4,644 | [Note 10. Accounts Receivable Discount Programs](index=17&type=section&id=Note%2010.%20Accounts%20Receivable%20Discount%20Programs) This note describes the company's accounts receivable discount programs, which allow it to sell customer receivables to banks at a discount to accelerate cash collection - The company uses accounts receivable discount programs to accelerate cash receipt from customers[55](index=55&type=chunk) | Accounts Receivable Discount Programs | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Receivables discounted | $168,194,000 | $144,541,000 | | Weighted average days collection accelerated | 345 | 342 | | Annualized weighted average discount rate | 5.7% | 6.9% | | Amount of discount recognized as interest expense | $9,158,000 | $9,507,000 | [Note 11. Supplier Finance Programs](index=17&type=section&id=Note%2011.%20Supplier%20Finance%20Programs) This note explains the company's supplier finance program, which enables suppliers to sell their receivables due from the company to participating financial institutions - The company utilizes a supplier finance program, allowing suppliers to sell receivables to financial institutions[57](index=57&type=chunk) - Outstanding supplier obligations confirmed under this program were **$31.292 million** at June 30, 2025, down from **$33.661 million** at March 31, 2025[57](index=57&type=chunk) [Note 12. Net Income (Loss) per Share](index=17&type=section&id=Note%2012.%20Net%20Income%20(Loss)%20per%20Share) This note provides the reconciliation of basic and diluted net income (loss) per share, detailing the weighted average number of shares outstanding and the impact of potentially dilutive securities | Net Income (Loss) per Share | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $3,042,000 | $(18,085,000) | | Basic net income (loss) per share | $0.16 | $(0.92) | | Diluted net income (loss) per share | $0.15 | $(0.92) | - For Q1 2025, **1,049,341** potential common shares were anti-dilutive and excluded from diluted EPS calculation, compared to **2,285,834** in Q1 2024[59](index=59&type=chunk) [Note 13. Income Taxes](index=18&type=section&id=Note%2013.%20Income%20Taxes) This note details the company's income tax expense and effective tax rate, highlighting the impact of valuation allowances on deferred tax assets and foreign income | Income Tax | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------- | :------------------------------- | :------------------------------- | | Income tax expense (benefit) | $2,425,000 | $(178,000) | | Effective tax rate | 44.4% | 1% | - The effective tax rate for Q1 2025 was primarily impacted by changes in valuation allowance on deferred tax assets and foreign income taxed at different rates[61](index=61&type=chunk) - The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, on its future effective tax rate and deferred tax assets[64](index=64&type=chunk) [Note 14. Financial Risk Management and Derivatives](index=19&type=section&id=Note%2014.%20Financial%20Risk%20Management%20and%20Derivatives) This note describes the company's strategy for managing financial risks, primarily foreign exchange rate fluctuations, through the use of forward foreign currency exchange contracts - The company uses forward foreign currency exchange contracts to mitigate market risk from fluctuations in the Mexican peso and Chinese yuan[66](index=66&type=chunk)[67](index=67&type=chunk) | Forward Foreign Currency Exchange Contracts (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------------------------- | :------------ | :------------- | | U.S. dollar equivalent notional value | $42,531 | $45,921 | - A non-cash loss of **$5.369 million** from forward foreign currency exchange contracts was recorded in Q1 2025, compared to a gain of **$4.346 million** in Q1 2024[69](index=69&type=chunk) [Note 15. Fair Value Measurements](index=20&type=section&id=Note%2015.%20Fair%20Value%20Measurements) This note summarizes financial assets and liabilities measured at fair value, categorized by the fair value hierarchy (Level 1, 2, and 3) | Fair Value Measurements (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------- | :------------ | :------------- | | Mutual funds (Level 1) | $2,011 | $1,881 | | Forward foreign currency exchange contracts (Level 2) | $2,683 | $0 | | Compound Net Derivative Liability (Level 3) | $9,260 | $7,470 | - The fair value of the Compound Net Derivative Liability, valued using Level 3 inputs and the Monte Carlo simulation model, increased from **$7.47 million** at March 31, 2025, to **$9.26 million** at June 30, 2025[73](index=73&type=chunk)[75](index=75&type=chunk) - Key assumptions for the Compound Net Derivative Liability valuation include a risk-free interest rate of **3.70%**, cost of equity of **21.40%**, and expected volatility of common stock of **47.50%** at June 30, 2025[74](index=74&type=chunk) [Note 16. Share-based Payments](index=22&type=section&id=Note%2016.%20Share-based%20Payments) This note provides a summary of the company's share-based payment awards, including stock options, Restricted Stock Units (RSUs), and Performance Stock Units (PSUs) | Share-based Payments | Outstanding at March 31, 2025 | Outstanding at June 30, 2025 | | :------------------- | :---------------------------- | :--------------------------- | | Stock Options | 1,053,561 | 1,049,341 | | Non-vested RSUs | 505,373 | 811,981 | | Non-vested PSUs | 764,387 | 998,147 | - The company granted **428,552** time-based vesting RSUs and **353,778** PSUs (at target performance levels) during Q1 2025[80](index=80&type=chunk)[82](index=82&type=chunk) - Total unrecognized compensation expense for RSUs is **$5.931 million** (**2.7 years** remaining vesting period) and for PSUs is **$5.256 million** (**2.2 years** remaining vesting period) at June 30, 2025[81](index=81&type=chunk)[86](index=86&type=chunk) [Note 17. Commitments and Contingencies](index=24&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) This note addresses the company's commitments and contingencies, specifically detailing the accrual for warranty returns and the status of various lawsuits, claims, and administrative proceedings | Warranty Returns (in thousands) | June 30, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------ | | Balance at beginning of period | $19,677 | $19,326 | | Charged to expense | $38,453 | $33,352 | | Amounts processed | $(39,999) | $(37,632) | | Balance at end of period | $18,131 | $15,046 | - The total warranty return accrual was **$18.131 million** at June 30, 2025, a decrease from **$19.677 million** at March 31, 2025[88](index=88&type=chunk) - The company has an immaterial amount accrued for various lawsuits, claims, examinations, and administrative proceedings[89](index=89&type=chunk) [Note 18. Segment Information](index=25&type=section&id=Note%2018.%20Segment%20Information) This note identifies the company's three operating segments: Hard Parts, Test Solutions and Diagnostic Equipment, and Heavy Duty - The company operates in three segments: Hard Parts, Test Solutions and Diagnostic Equipment, and Heavy Duty[91](index=91&type=chunk)[92](index=92&type=chunk) - Hard Parts is the only reportable segment, with Test Solutions and Diagnostic Equipment and Heavy Duty segments being immaterial[91](index=91&type=chunk) | Hard Parts Segment (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net sales to external customers | $174,889 | $158,187 | | Total operating income (loss) | $18,432 | $(6,459) | | Depreciation and amortization | $2,232 | $2,525 | | Capital expenditures | $394 | $253 | [Note 19. Share Repurchases](index=27&type=section&id=Note%2019.%20Share%20Repurchases) This note details the company's share repurchase program, which was increased to $37 million in August 2018 - The board approved an increase in the share repurchase program to **$37 million** in August 2018[95](index=95&type=chunk) - During Q1 2025, the company repurchased **197,796 shares** of common stock for **$1.966 million**[95](index=95&type=chunk) - As of June 30, 2025, **$11.457 million** remains available under the authorized share repurchase program[95](index=95&type=chunk) [Note 20. Related Party Transactions](index=27&type=section&id=Note%2020.%20Related%20Party%20Transactions) This note discloses related party transactions, specifically an operating lease for a manufacturing facility in Canada with a company co-owned by a member of management - The company has an operating lease for a Canadian facility with a company co-owned by a member of management, with rent expense of **$93 thousand** in Q1 2025[96](index=96&type=chunk) - Douglas Trussler, a co-founder of Bison Capital, was appointed to the Board in connection with the Convertible Notes issuance[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended June 30, 2025, compared to the prior year [Management Overview](index=28&type=section&id=Management%20Overview) The management overview highlights the company's focus on growing its aftermarket hard parts business in North America and expanding its leadership in the test solutions and diagnostic equipment market through innovative solutions - The company focuses on growing its aftermarket hard parts business in North America and its leadership in test solutions and diagnostic equipment[101](index=101&type=chunk) - Significant investments include a **410,000 sq ft** distribution center, two buildings totaling **372,000 sq ft** for remanufacturing/core sorting, and production realignment at a **312,000 sq ft** facility in Mexico[101](index=101&type=chunk) [Segment Reporting](index=28&type=section&id=Segment%20Reporting) This section reiterates the company's three operating segments: Hard Parts, Test Solutions and Diagnostic Equipment, and Heavy Duty - The company's three operating segments are Hard Parts, Test Solutions and Diagnostic Equipment, and Heavy Duty[102](index=102&type=chunk)[103](index=103&type=chunk) - Hard Parts is the only reportable segment, as the other two do not meet materiality thresholds[102](index=102&type=chunk) [Results of Operations for the Three Months Ended June 30, 2025 and 2024](index=29&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) This section provides a detailed analysis of the company's operating results, highlighting significant improvements in net sales, gross profit, and operating income | Key Operating Data (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Cash flow provided by (used in) operations | $10,028 | $(20,841) | | Finished goods turnover (annualized) | 4.2 | 3.3 | [Net Sales and Gross Profit](index=29&type=section&id=Net%20Sales%20and%20Gross%20Profit) Net sales increased by 10.9% year-over-year, driven by strong demand for rotating electrical and brake-related products | Net Sales and Gross Profit (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $188,364 | $169,887 | | Gross profit | $33,917 | $29,174 | | Gross margin | 18.0% | 17.2% | - Net sales increased by **$18.477 million**, or **10.9%**, year-over-year, reflecting strong demand for rotating electrical and brake-related products[106](index=106&type=chunk) - Gross margin increased due to increased facility utilization, operating efficiencies, cost-saving initiatives, and changes in product mix, partially offset by **$1.426 million** in net tariff costs[107](index=107&type=chunk) [Operating Expenses](index=30&type=section&id=Operating%20Expenses) Operating expenses decreased significantly year-over-year, primarily due to a non-cash foreign exchange gain on lease liabilities and forward contracts, and reduced general and administrative expenses from prior year headcount reductions | Operating Expenses (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | General and administrative | $12,680 | $16,670 | | Sales and marketing | $6,210 | $5,449 | | Research and development | $3,306 | $2,433 | | Foreign exchange impact of lease liabilities and forward contracts | $(8,348) | $11,078 | - General and administrative expenses decreased by **$3.99 million** (**23.9%**) due to prior year headcount reduction and favorable foreign currency fluctuations[109](index=109&type=chunk) - Foreign exchange impact shifted from a non-cash loss of **$11.078 million** in Q1 2024 to a non-cash gain of **$8.348 million** in Q1 2025[112](index=112&type=chunk) [Operating Income (Loss)](index=30&type=section&id=Operating%20Income%20(Loss)) The company achieved a consolidated operating income of $20.069 million in Q1 2025, a substantial improvement from an operating loss of $6.456 million in Q1 2024 | Operating Income (Loss) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | | Consolidated operating income (loss) | $20,069 | $(6,456) | - The increase in operating income was primarily due to a non-cash foreign exchange gain of **$8.348 million** (vs. **$11.078 million** loss in prior year), increased gross profit, and decreased general and administrative expenses[113](index=113&type=chunk) [Interest Expense](index=31&type=section&id=Interest%20Expense) Net interest expense decreased by 10.9% year-over-year, primarily due to lower average outstanding balances under the credit facility and reduced interest rates on both the credit facility and accounts receivable discount programs | Interest Expense, net (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Interest expense, net | $12,812 | $14,387 | - Interest expense decreased by **$1.575 million** (**10.9%**) due to lower average outstanding balances under the credit facility and lower interest rates[114](index=114&type=chunk) [Change in Fair Value of Compound Net Derivative Liability](index=31&type=section&id=Change%20in%20Fair%20Value%20of%20Compound%20Net%20Derivative%20Liability) The change in fair value of the compound net derivative liability associated with convertible notes resulted in a non-cash loss of $1.790 million in Q1 2025, contrasting with a non-cash gain of $2.580 million in Q1 2024 | Change in Fair Value of Compound Net Derivative Liability (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------------------------------------------- | :------------------------------- | :------------------------------- | | Change in fair value | $1,790 | $(2,580) | [Provision for Income Taxes](index=31&type=section&id=Provision%20for%20Income%20Taxes) The company recorded an income tax expense of $2.425 million, resulting in an effective tax rate of 44.4% for Q1 2025, a significant change from an income tax benefit of $178,000 (1.0% effective rate) in Q1 2024 | Income Tax (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | | Income tax expense (benefit) | $2,425 | $(178) | | Effective tax rate | 44.4% | 1.0% | - The effective tax rate for Q1 2025 was primarily impacted by changes in valuation allowance on deferred tax assets and foreign income taxed at different rates[116](index=116&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial flexibility, including working capital, cash flow generation, and available credit facilities [Overview](index=31&type=section&id=Overview) The company's working capital was $158.766 million at June 30, 2025, with a current asset to current liability ratio of 1.4:1.0 | Working Capital (in thousands) | June 30, 2025 | March 31, 2025 | | :----------------------------- | :------------ | :------------- | | Working capital | $158,766 | $160,446 | | Current assets to current liabilities ratio | 1.4:1.0 | 1.5:1.0 | - Primary liquidity sources are cash from operations, receivable discount programs, and the credit facility[118](index=118&type=chunk) [Share Repurchase Program](index=31&type=section&id=Share%20Repurchase%20Program) The company's board approved an increase in its share repurchase program to $37 million in August 2018 - Share repurchase program increased to **$37 million** in August 2018[119](index=119&type=chunk) - **197,796 shares** were repurchased for **$1.996 million** during Q1 2025[119](index=119&type=chunk) - **$11.457 million** remains available for repurchases as of June 30, 2025[119](index=119&type=chunk) [Cash Flows](index=32&type=section&id=Cash%20Flows) Net cash provided by operating activities significantly improved to $10.028 million in Q1 2025 from a net cash outflow in Q1 2024, driven by increased accounts payable and improved operating results | Cash Flows (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | | Operating activities | $10,028 | $(20,841) | | Investing activities | $(806) | $(512) | | Financing activities | $(6,778) | $15,166 | - Net cash provided by operating activities improved by **$30.869 million** year-over-year, primarily due to increased accounts payable and improved operating results[120](index=120&type=chunk) - Net cash used in financing activities was **$6.778 million**, a change from **$15.166 million** provided in the prior year, mainly due to net repayments of the revolving loan and common stock repurchases[122](index=122&type=chunk) [Capital Resources](index=32&type=section&id=Capital%20Resources) The company's capital resources include a $268.62 million senior secured Credit Facility, with $86.856 million outstanding under the Revolving Facility and $134.341 million available at June 30, 2025 - The Credit Facility consists of a **$238.62 million** revolving loan facility and a **$30 million** term loan facility (repaid), maturing December 12, 2028[123](index=123&type=chunk) | Revolving Facility (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Outstanding balance | $86,856 | $90,787 | | Available credit | $134,341 | N/A | | Interest rate | 7.40% | 7.46% | - Convertible Notes of **$32 million** principal amount, due 2029, bear **10.0%** interest and had an effective interest rate of **18.3%** at June 30, 2025[126](index=126&type=chunk) [Accounts Receivable Discount Programs](index=33&type=section&id=Accounts%20Receivable%20Discount%20Programs) The company utilizes accounts receivable discount programs to accelerate cash collection, selling customer receivables to banks at a discount - Accounts receivable discount programs accelerate cash receipt by selling receivables to banks[130](index=130&type=chunk) | Accounts Receivable Discount Programs | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Receivables discounted | $168,194,000 | $144,541,000 | | Weighted average days collection accelerated | 345 | 342 | | Annualized weighted average discount rate | 5.7% | 6.9% | | Amount of discount recognized as interest expense | $9,158,000 | $9,507,000 | [Supplier Finance Programs](index=34&type=section&id=Supplier%20Finance%20Programs) The company uses a supplier finance program that allows its suppliers to sell their receivables to financial institutions - Supplier finance program allows suppliers to sell receivables to financial institutions; the company has no economic interest[133](index=133&type=chunk) - Outstanding supplier obligations confirmed under this program were **$31.292 million** at June 30, 2025, a decrease from **$33.661 million** at March 31, 2025[133](index=133&type=chunk) [Capital Expenditures and Commitments](index=34&type=section&id=Capital%20Expenditures%20and%20Commitments) Total capital expenditures for Q1 2025 were $2.708 million, significantly higher than the prior year, primarily for equipment supporting current operations and global growth initiatives | Capital Expenditures (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Total capital expenditures | $2,708 | $493 | - Capital expenditures for Q1 2025 primarily supported current operations and global growth initiatives[134](index=134&type=chunk) - The company expects approximately **$8 million** in capital expenditures for fiscal 2026[134](index=134&type=chunk) [Related Party Transactions](index=34&type=section&id=Related%20Party%20Transactions) This section reiterates the related party operating lease for a Canadian facility, with rent expense of $93,000 for Q1 2025, and the appointment of Douglas Trussler to the Board in connection with the Convertible Notes issuance - Operating lease for a Canadian facility with a company co-owned by management resulted in **$93 thousand** rent expense in Q1 2025[135](index=135&type=chunk) - Douglas Trussler was appointed to the Board in connection with the Convertible Notes issuance[136](index=136&type=chunk) [Litigation](index=35&type=section&id=Litigation) The company is subject to various lawsuits, claims, examinations, and administrative proceedings, but has accrued an immaterial amount related to these exposures - The company is subject to various lawsuits, claims, and administrative proceedings[137](index=137&type=chunk) - An immaterial amount is accrued for these exposures[137](index=137&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) This section states that there have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - No material changes to critical accounting policies and estimates since the March 31, 2025, Annual Report on Form 10-K[138](index=138&type=chunk) [Accounting Pronouncements Not Yet Adopted](index=35&type=section&id=Accounting%20Pronouncements%20Not%20Yet%20Adopted) This section discusses several new FASB Accounting Standards Updates (ASUs) that are not yet adopted, including those related to disclosure improvements, income tax disclosures, disaggregation of income statement expenses, and debt with conversion options - The company is evaluating the impact of ASU 2023-06 (Disclosure Improvements), ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Disaggregation of Income Statement Expenses), and ASU 2024-04 (Debt with Conversion and Other Options)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - These ASUs have various effective dates, with the earliest for fiscal years beginning after December 15, 2024, and the latest for annual reporting periods beginning after December 15, 2026[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in market risk from the information previously provided in the company's Annual Report on Form 10-K as of March 31, 2025 - No material changes in market risk from the information provided in the Annual Report on Form 10-K as of March 31, 2025[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, based on an evaluation by management - The company's disclosure controls and procedures were effective as of June 30, 2025[145](index=145&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[150](index=150&type=chunk) - Internal control over financial reporting is designed to provide reasonable assurance regarding financial reporting reliability, but has inherent limitations[147](index=147&type=chunk)[149](index=149&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is subject to various lawsuits, claims, examinations, and administrative proceedings, but has accrued an immaterial amount related to these exposures - The company is subject to various lawsuits, claims, and administrative proceedings[152](index=152&type=chunk) - An immaterial amount is accrued for these exposures[152](index=152&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - No material changes in risk factors from the Annual Report on Form 10-K for the fiscal year ended March 31, 2025[153](index=153&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase activities during the quarter, including the number of shares purchased, average price paid, and the remaining amount available under the authorized program - The Credit Facility permits up to **$27.584 million** of dividends and share repurchases for fiscal year 2026[154](index=154&type=chunk) | Purchases of Equity Securities by the Issuer | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) | | :----------------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | April 1 - April 30, 2025 | - | - | - | $13,423,000 | | May 1 - May 31, 2025 | 98,671 | $9.73 | 960,000 | $12,463,000 | | June 1 - June 30, 2025 | 99,125 | $10.15 | 1,006,000 | $11,457,000 | | Total | 197,796 | $1,966,000 | N/A | $11,457,000 | - As of June 30, 2025, **$11.457 million** remains available under the authorized share repurchase program[156](index=156&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section explicitly states that there were no defaults upon senior securities during the reported period - No defaults upon senior securities were reported[155](index=155&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) This section discloses that the company purchased 197,796 shares under a Rule 10b5-1 trading arrangement during the quarter, which allows for share repurchases during blackout periods or when in possession of material non-public information - The company purchased **197,796 shares** under a Rule 10b5-1 trading arrangement during Q1 2025[158](index=158&type=chunk) - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[160](index=160&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of exhibits filed with the Form 10-Q, including various corporate documents, incentive award plans, convertible promissory notes, common stock warrants, and certifications required by the Sarbanes-Oxley Act - The exhibits include corporate documents like the Certificate of Incorporation and By-Laws, various Incentive Award Plans (2010 and 2022), and forms related to Convertible Promissory Notes and Common Stock Warrants[161](index=161&type=chunk)[162](index=162&type=chunk) - Certifications from the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed herewith[162](index=162&type=chunk) SIGNATURES [Signatures](index=43&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's Chief Financial Officer and Chief Accounting Officer, affirming the submission of the report pursuant to the Securities Exchange Act of 1934 - The report is signed by David Lee, Chief Financial Officer, and Kamlesh Shah, Chief Accounting Officer, on August 11, 2025[167](index=167&type=chunk)

Financial Data and Key Metrics Changes - Net sales increased by 10.9% to a record $188.4 million for Q1 2026 compared to $169.9 million in the prior year [17][18] - Gross profit rose by 16.3% to a record $33.9 million from $29.2 million a year earlier, with gross margin improving to 18% from 17.2% [19][20] - Operating income increased to $20.1 million from an operating loss of $6.5 million in the prior year, reflecting a 153.6% increase when excluding non-cash foreign exchange impacts [20][21] - Net income for Q1 2026 was $3 million or $0.15 per diluted share, compared to a net loss of $18.1 million or $0.92 per share in the prior year [22] Business Line Data and Key Metrics Changes - The hard parts business, particularly rotating electrical products, continues to perform well, contributing to overall sales growth [7][10] - Brake offerings, including brake calipers, are gaining market share and are expected to enhance operating efficiency and margins [9][10] - The diagnostic business, led by the JBT-one benchtop tester, is growing, with additional service-related revenue anticipated as more testers are deployed [12] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has increased to 12.8 years, leading to more replacement opportunities for aftermarket parts [8] - The number of vehicles on the road rose to 293.5 million from 289 million a year ago, indicating a growing market for replacement parts [8] Company Strategy and Development Direction - The company is focused on continuous improvement and leveraging its North American operational and distribution footprint to drive growth [6][10] - There is a strategic emphasis on reducing dependence on the Chinese supply chain and enhancing operational efficiencies [12][13] - The company aims to grow sales of existing product lines while improving operational efficiencies to enhance margins and mitigate tariff impacts [41][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the outlook for fiscal 2026, citing strong sales growth and favorable industry dynamics for non-discretionary aftermarket parts [14][41] - The company anticipates continued organic growth supported by favorable industry tailwinds and increased demand for aftermarket parts in Mexico [14][23] - Management highlighted the importance of maintaining strong liquidity and low leverage to enhance shareholder value [42] Other Important Information - The company generated $10 million in cash from operating activities during Q1 2026, a significant improvement from a cash use of $20.8 million in the prior year [23] - Net bank debt decreased by $7 million to $74.4 million, reflecting ongoing efforts to reduce debt [23] Q&A Session Summary Question: Impact of tariffs this quarter compared to last quarter - Management noted a smaller impact from tariffs this quarter, with a $1.4 million impact compared to $4.6 million in the previous quarter [28][29] Question: Assumptions made for full year guidance regarding tariffs - Management indicated that while they raised sales guidance, they are not disclosing specific details on tariff pass-throughs due to confidentiality [30][31] Question: Major growth opportunities in rotating electric and braking businesses - Management highlighted significant growth potential in the professional installer market and emphasized opportunities for market share growth in brake-related products [34][36]

Core Viewpoint - The article emphasizes the importance of value investing and highlights Motorcar Parts of America (MPAA) as a strong value stock based on its financial metrics and Zacks Rank [1][2][6]. Company Summary - Motorcar Parts of America (MPAA) currently holds a Zacks Rank of 1 (Strong Buy) and an A grade for Value, indicating strong potential for investors [4]. - The stock is trading at a P/E ratio of 6.7, significantly lower than the industry average of 9.30, suggesting it may be undervalued [4]. - Over the past year, MPAA's Forward P/E has fluctuated between 5.81 and 21.89, with a median of 8.60, indicating volatility in its valuation [4]. - MPAA's P/B ratio stands at 0.85, compared to the industry average of 1.53, further supporting the notion that the stock is undervalued [5]. - The P/B ratio has ranged from a low of 0.39 to a high of 0.94 over the past year, with a median of 0.60, reflecting its valuation dynamics [5]. - Overall, the financial metrics suggest that MPAA is likely undervalued and has a strong earnings outlook, making it one of the market's strongest value stocks [6].

[Executive Summary & Fiscal First Quarter 2026 Performance](index=1&type=section&id=Executive%20Summary%20%26%20Fiscal%20First%20Quarter%202026%20Performance) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Motorcar Parts of America reported record sales and gross profit for its fiscal 2026 first quarter, alongside a significant improvement in operating income and a return to net income. The company also generated solid cash flow from operations and reduced net bank debt | Metric | Q1 FY2026 (June 30, 2025) | Q1 FY2025 (June 30, 2024) | Change (%) | | :-------------------------------- | :------------------------ | :------------------------ | :--------- | | Net Sales | $188.4 million | $169.9 million | 10.9% | | Gross Profit | $33.9 million | $29.2 million | 16.3% | | Gross Margin | 18.0% | 17.2% | 0.8 pp | | Operating Income (Loss) | $20.1 million | $(6.5) million | N/A | | Net Income (Loss) | $3.0 million | $(18.1) million | N/A | | Diluted EPS | $0.15 | $(0.92) | N/A | | Cash from Operating Activities | $10.0 million | $(20.8) million | N/A | | Net Bank Debt | $74.4 million | $81.4 million | (8.6%) | - Operating income, excluding non-cash foreign exchange impact, increased **153.6%** to **$11.7 million** from **$4.6 million** in the prior year[6](index=6&type=chunk) - Interest expense decreased by **$1.6 million** to **$12.8 million**, driven by lower average outstanding balances and reduced interest rates[8](index=8&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) CEO Selwyn Joffe expressed satisfaction with the record first-quarter results, emphasizing the company's focus on supply chain and operating efficiencies. He highlighted favorable industry dynamics, including an increasing number of vehicles and an aging car parc, and noted proactive efforts to reduce reliance on Chinese suppliers - The company is focused on enhancing its supply chain and operating efficiencies to capitalize on its prominent position in the non-discretionary automotive aftermarket business[10](index=10&type=chunk)[12](index=12&type=chunk) - Favorable industry dynamics, such as an increasing number of vehicles on the road and an aging car parc (currently **12.8 years** in the U.S.), continue to drive the automotive aftermarket[11](index=11&type=chunk) - Reliance on Chinese suppliers has been significantly reduced to less than **25%** of parts and components, with optimism for a successful resolution of current global economic events related to tariffs[12](index=12&type=chunk) [Share Repurchase Activity](index=2&type=section&id=Share%20Repurchase%20Activity) During the fiscal 2026 first quarter, the company repurchased shares under its current authorization program, supported by strong cash generation | Metric | Q1 FY2026 | | :-------------------- | :---------- | | Shares Repurchased | 197,796 | | Total Value | $2.0 million | | Average Price per Share | $9.94 | - The company anticipates further opportunities to build shareholder value through enhanced profitability and strong cash generation[14](index=14&type=chunk) [Fiscal 2026 Guidance Update](index=3&type=section&id=Fiscal%202026%20Guidance%20Update) Motorcar Parts of America has increased its fiscal 2026 sales guidance, reflecting a strong start to the fiscal year and the impact of tariff passthroughs. Operating income guidance remains reaffirmed, incorporating tariff passthroughs and cost mitigation | Metric | Updated Fiscal 2026 Guidance | | :-------------------- | :--------------------------- | | Net Sales | $800 million to $820 million | | YoY Sales Growth | 5.6% to 8.3% | | Operating Income | $86 million to $91 million | | YoY Operating Income Growth | 4.3% to 10.4% | | Depreciation & Amortization | Approximately $11 million | - The sales guidance increase incorporates the impact of tariff passthroughs[15](index=15&type=chunk) - Operating income guidance reflects a combination of tariff passthroughs and cost mitigation measures[15](index=15&type=chunk) [Company Information](index=4&type=section&id=Company%20Information) [About Motorcar Parts of America, Inc.](index=4&type=section&id=About%20Motorcar%20Parts%20of%20America%2C%20Inc.) Motorcar Parts of America is a remanufacturer, manufacturer, and distributor of automotive aftermarket parts for various vehicle types, serving retail and professional repair markets across North America. The company also has an electrical vehicle subsidiary focused on testing solutions for the electrification of automotive and aerospace industries - The company's core business involves remanufacturing, manufacturing, and distributing automotive aftermarket parts such as alternators, starters, brake components, and turbochargers[18](index=18&type=chunk) - Products are sold to automotive retail outlets and the professional repair market in the United States, Canada, and Mexico[18](index=18&type=chunk) - An electrical vehicle subsidiary designs and manufactures testing solutions for performance, endurance, and production of multiple components in the electric power train, including EV charging systems[18](index=18&type=chunk) [Safe Harbor Statement](index=4&type=section&id=Safe%20Harbor%20Statement) The Private Securities Litigation Reform Act of 1995 provides a 'safe harbor' for forward-looking statements made in this press release. These statements are based on current expectations and involve significant risks and uncertainties, as detailed in the company's SEC filings - Forward-looking statements are subject to significant risks and uncertainties, some beyond the company's control, and are subject to change[19](index=19&type=chunk) - Investors are referred to the Risk Factors in the company's Form 10-K and 10-Q filings with the SEC for additional information on risks and uncertainties[19](index=19&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statements of Operations (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20%28Unaudited%29) The consolidated statements of operations show a strong performance for Q1 FY2026, with significant increases in net sales and gross profit, and a shift from an operating loss to a substantial operating income, leading to positive net income | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $188,364,000 | $169,887,000 | | Cost of goods sold | $154,447,000 | $140,713,000 | | Gross profit | $33,917,000 | $29,174,000 | | Total operating expenses | $13,848,000 | $35,630,000 | | Operating income (loss) | $20,069,000 | $(6,456,000) | | Interest expense, net | $12,812,000 | $14,387,000 | | Income (loss) before income tax expense (benefit) | $5,467,000 | $(18,263,000) | | Net income (loss) | $3,042,000 | $(18,085,000) | | Diluted net income (loss) per share | $0.15 | $(0.92) | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2025, shows an increase in total assets and shareholders' equity compared to March 31, 2025, reflecting improved financial health. Cash and cash equivalents also increased | Metric | June 30, 2025 (Unaudited) | March 31, 2025 | | :-------------------------------- | :-------------------------- | :------------- | | **ASSETS** | | | | Cash and cash equivalents | $12,479,000 | $9,429,000 | | Total current assets | $519,382,000 | $511,471,000 | | TOTAL ASSETS | $973,350,000 | $957,636,000 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $360,616,000 | $351,025,000 | | Revolving loan | $86,856,000 | $90,787,000 | | Total liabilities | $713,237,000 | $699,937,000 | | Total shareholders' equity | $260,113,000 | $257,699,000 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $973,350,000 | $957,636,000 | - Cash and cash equivalents increased by **$3.05 million** from March 31, 2025, to June 30, 2025[24](index=24&type=chunk) - The revolving loan balance decreased by **$3.931 million** from March 31, 2025, to June 30, 2025[24](index=24&type=chunk) [Non-GAAP Financial Measures and Additional Information](index=3&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Additional%20Information) [Use of Non-GAAP Measures Explanation](index=3&type=section&id=Use%20of%20Non-GAAP%20Measures%20Explanation) The company uses non-GAAP measures, such as EBITDA, to provide investors and management with additional insights into financial and business trends. These measures are supplementary to GAAP and should not be considered substitutes, as they have limitations and may not be comparable to other companies' metrics - EBITDA is defined as earnings before interest, taxes, depreciation, and amortization[16](index=16&type=chunk)[27](index=27&type=chunk) - Non-GAAP measures do not reflect all costs and items associated with business operations in accordance with GAAP and may differ from similar measures used by other companies[16](index=16&type=chunk)[26](index=26&type=chunk) [Items Impacting Net Income (Exhibit 1)](index=8&type=section&id=Items%20Impacting%20Net%20Income%20%28Exhibit%201%29) Exhibit 1 provides a reconciliation of GAAP net income (loss) to adjusted net income by detailing non-cash and cash items impacting net income for the three months ended June 30, 2025 and 2024 | Item | Q1 FY2026 ($) | Q1 FY2026 (Per Diluted Share) | Q1 FY2025 ($) | Q1 FY2025 (Per Diluted Share) | | :---------------------------------------------------------- | :------------ | :---------------------------- | :------------ | :---------------------------- | | GAAP net income (loss) | $3,042,000 | $0.15 | $(18,085,000) | $(0.92) | | **Total non-cash items impacting net income** | $(1,304,000) | $(0.07) | $9,465,000 | $0.48 | | *Foreign exchange impact of lease liabilities and forward contracts* | $(8,348,000) | $(0.42) | $11,078,000 | $0.56 | | **Total cash items impacting net income** | $1,069,000 | $0.05 | $2,205,000 | $0.11 | | *Net tariff costs paid for products sold before price increases were effective* | $1,426,000 | $0.07 | - | - | [Items Impacting Gross Profit (Exhibit 2)](index=9&type=section&id=Items%20Impacting%20Gross%20Profit%20%28Exhibit%202%29) Exhibit 2 details the non-cash and cash items that impacted gross profit and gross margin for the three months ended June 30, 2025 and 2024 | Item | Q1 FY2026 ($) | Q1 FY2026 (Gross Margin %) | Q1 FY2025 ($) | Q1 FY2025 (Gross Margin %) | | :---------------------------------------------------------- | :------------ | :------------------------- | :------------ | :------------------------- | | GAAP gross profit | $33,917,000 | 18.0% | $29,174,000 | 17.2% | | **Total non-cash items impacting gross profit** | $3,873,000 | 2.1% | $3,122,000 | 1.8% | | *Core and finished goods premium amortization* | $2,847,000 | 1.5% | $2,728,000 | 1.6% | | **Total cash items impacting gross profit** | $1,426,000 | 0.8% | - | 0.0% | | *Net tariff costs paid for products sold before price increases were effective* | $1,426,000 | 0.8% | - | - | [Items Impacting EBITDA (Exhibit 3)](index=10&type=section&id=Items%20Impacting%20EBITDA%20%28Exhibit%203%29) Exhibit 3 provides a reconciliation of GAAP net income (loss) to EBITDA, along with the non-cash and cash items impacting EBITDA for the three months ended June 30, 2025 and 2024 | Item | Q1 FY2026 ($) | Q1 FY2025 ($) | | :---------------------------------------------------------- | :------------ | :------------ | | GAAP net income (loss) | $3,042,000 | $(18,085,000) | | Interest expense, net | $12,812,000 | $14,387,000 | | Income tax expense (benefit) | $2,425,000 | $(178,000) | | Depreciation and amortization | $2,449,000 | $2,729,000 | | **EBITDA** | $20,728,000 | $(1,147,000) | | **Total non-cash items impacting EBITDA** | $(1,739,000) | $12,620,000 | | *Foreign exchange impact of lease liabilities and forward contracts* | $(8,348,000) | $11,078,000 | | **Total cash items impacting EBITDA** | $1,426,000 | $2,940,000 | [Earnings Conference Call and Webcast](index=3&type=section&id=Earnings%20Conference%20Call%20and%20Webcast) Motorcar Parts of America hosted an investor conference call and webcast to discuss its financial results and operations, with replay options available - The conference call was held on August 11, 2025, at **10:00 a.m. Pacific time**[17](index=17&type=chunk) - Access was available via live audio webcast at www.motorcarparts.com or by phone[17](index=17&type=chunk) - A telephone playback of the conference call was available until August 18, 2025[17](index=17&type=chunk)

Summary of Motorcar Parts of America (MPAA) FY Conference Call Company Overview - **Company**: Motorcar Parts of America (MPAA) - **Industry**: Automotive aftermarket, specializing in nondiscretionary replacement parts, particularly in rotating electrical and brake components [7][8] Key Financial Highlights - **Cash Generation**: Generated $45 million in cash during the last fiscal year [9] - **Debt Reduction**: Paid down over $30 million of debt, resulting in net debt of approximately $80 million [9] - **EBITDA**: Significant EBITDA reported, with a low debt-to-EBITDA ratio indicating strong liquidity [9] - **Share Buybacks**: Engaged in share buybacks, reflecting confidence in the company's financial health [9] Tariff Impact and Mitigation Strategies - **Tariff Headwinds**: Facing short-term tariff headwinds due to transitional tariffs, but expects to mitigate 100% of the tariff impact over time [10][13] - **Operational Adjustments**: Implementing operational adjustments and supply chain efficiencies to manage tariff costs [13][14] - **Competitive Advantage**: Less than 25% of products are subject to tariffs, providing a competitive edge over competitors who may face higher costs [15][18] Market Demand Dynamics - **Nondiscretionary Demand**: The demand for replacement parts remains stable and is driven by the increasing number of older vehicles on the road, with the average vehicle age at 12.8 years [23][24] - **Consumer Behavior**: Consumers are likely to replace parts rather than vehicles, maintaining demand for MPAA's products [25][28] - **Inflation Effects**: Some inflation in the market is viewed positively as it supports a viable supply chain [29] Product Diversification and Growth Strategy - **Expansion Beyond Core Products**: Transitioning from a focus solely on rotating electrical parts to include a broader range of brake components, with significant market share growth in brake calipers and pads [34][35] - **Focus on Existing Categories**: The company is concentrating on growing existing product lines rather than seeking new categories at this time [37][39] Competitive Positioning - **Service and Quality**: Emphasizes a comprehensive service model and high-quality products, with tier certification in all facilities [42][45] - **Manufacturing Efficiency**: Over 75% of production is based in Mexico, which is USMCA certified and tariff-free, enhancing operational flexibility [47][48] Currency Management - **Noncash Items**: Addressed the impact of noncash items related to currency fluctuations, particularly the mark-to-market on Mexican leases, which does not affect cash flow [53][55] - **Forward Contracts**: Engaging in forward contracts for currency to manage cash requirements effectively [56][58] M&A Considerations - **Open to Opportunities**: While not actively seeking M&A, the company remains open to opportunities in a consolidating supply chain environment [61][62] Long-term Financial Outlook - **Growth Projections**: Anticipates mid to high single-digit growth with potential for margin accretion in the mid to high twenties [63][64] - **Positive Cash Flow Focus**: Committed to maintaining positive cash flow and enhancing shareholder value through strategic capital deployment [38][62] Conclusion - **Overall Sentiment**: The company expresses optimism about overcoming short-term challenges, with a strong focus on growth, market share expansion, and operational efficiency [65]

Financial Performance - Sales increased by 5.5% to a record $757.4 million in fiscal 2025, despite industry softness [148] - Gross profit rose 16.1% to a record $153.8 million, with gross margin increasing by 1.8 percentage points to 20.3% [148] - Consolidated net sales for fiscal 2025 were $757,354,000, an increase of $39,670,000, or 5.5%, from fiscal 2024's $717,684,000 due to strong demand for rotating electric and brake-related product lines [204] - Gross profit for fiscal 2025 increased by $21,277,000, or 16.1%, to $153,828,000, with a gross profit margin improvement to 20.3% from 18.5% in fiscal 2024 [206] - Operating income for fiscal 2025 was $39,923,000, a decrease from $46,120,000 in fiscal 2024, primarily due to a non-cash loss of $15,892,000 from foreign exchange impacts [212] Cash Flow and Debt Management - Cash generated from operating activities was approximately $45.5 million, and net bank debt was reduced by $32.7 million to $81.4 million [148] - Cash provided by operating activities was $45,477,000 for fiscal 2025, up from $39,172,000 in fiscal 2024, reflecting improved operating results [222] - Net cash used in investing activities increased to $4,469,000 in fiscal 2025 from $479,000 in fiscal 2024, primarily due to higher capital expenditures [223] - Net cash used in financing activities was $44,655,000 in fiscal 2025, compared to $36,439,000 in fiscal 2024, mainly due to net repayments under the revolving facility and stock repurchases [224] - The company has a $268,620,000 senior secured Credit Facility, which includes a $238,620,000 revolving loan facility and a $30,000,000 term loan facility, maturing on December 12, 2028 [226] Inventory and Allowances - The reserve for excess and obsolete inventory increased to $18,964,000 as of March 31, 2025, compared to $17,372,000 in 2024, primarily due to excess finished goods inventory [171] - The customer finished goods returns accrual was $34,411,000 at March 31, 2025, down from $38,312,000 in 2024, reflecting changes in the timing of returned goods authorizations [196] - The company recorded an allowance for warranty returns based on historical return levels as a percentage of total unit sales, with stock adjustment returns typically less than 5% of units sold [185] - The allowance for potentially excess and obsolete inventory is based on recent sales history and forecasted inventory use, with reserves established at management's discretion [171] Shareholder Activities - The company repurchased 542,134 shares for $4.8 million during the full year under a current authorization program [154] - The company repurchased 542,134 shares of common stock for $4,832,000 during fiscal 2025, with $13,423,000 remaining available under the share repurchase program [247] Interest and Financing Costs - The weighted average discount rate for accounts receivable discount programs was 6.2% for fiscal 2025, down from 6.8% in fiscal 2024 [155] - The weighted average interest on borrowings under the credit facility was 7.46% at March 31, 2025, compared to 8.43% at March 31, 2024 [155] - Interest expense for fiscal 2025 decreased by $4,490,000, or 7.5%, to $55,550,000, attributed to lower outstanding balances and interest rates [213] - The effective interest rate on the convertible notes was 18.3% as of March 31, 2025 [239] Operational Developments - The company expanded its product coverage with over 629 new part numbers, covering approximately 130 million vehicles in operation in North America [148] - The roll-out of JBT-1 bench-top testers gained momentum, with most retail stores in North America deploying or planning to install the diagnostic units [148] - The company added a new warehousing and distribution facility in Malaysia to support future direct shipment programs [148] Future Outlook and Commitments - Total capital expenditures for fiscal 2025 were $6,066,000, an increase from $1,755,000 in fiscal 2024, with expectations of approximately $9,500,000 for fiscal 2026 to support global growth initiatives [249] - The company has long-term agreements with major customers, which may require increased inventories and personnel to meet demand [245][246] - Contractual obligations total $310,552,000, with $35,770,000 due within one year and $179,892,000 due in 3 to 5 years [250] Risk Management - Foreign currency exchange risk is significant, with a potential increase of $4,023,000 in operating expenses if exchange rates rise by 10% [255] - Losses of $4,179,000 and $1,373,000 were recorded in fiscal 2025 and 2024, respectively, due to changes in the value of forward foreign currency exchange contracts [255] - The company maintains an allowance for credit losses to cover potential losses from customer defaults, which could materially affect financial position [257]

Core Viewpoint - Motorcar Parts of America, Inc. is conducting its Q4 2025 earnings conference call, indicating a focus on financial performance and future outlook for the company [1]. Company Participants - The conference call features key company executives including Selwyn H. Joffe (Chairman, President & CEO), David Lee (Chief Financial Officer), and Gary S. Maier (Vice President of Corporate Communications and Investor Relations) [1][2]. Conference Call Structure - The call is structured to provide insights into the company's financial results and future expectations, with a reminder of the safe harbor statement regarding forward-looking statements [2][3].

Financial Data and Key Metrics Changes - Net sales increased by 5.5% to a record $757 million for fiscal year 2025, with gross profit rising by 16.1% to a record $154 million [7][20] - Cash flow from operating activities was $45.5 million, and net bank debt was reduced by $32.6 million to $81.4 million [7][27] - For the fourth quarter, net sales increased by 1.9% to $193.1 million, and gross profit increased by 10.6% to $38.5 million [20][21] Business Line Data and Key Metrics Changes - The hard parts business, particularly in rotating electrical products, continues to perform well, driven by the non-discretionary nature of the products [9][10] - Brake-related applications are the second largest product category, showing strong performance supported by quality and customer service [10][12] - The diagnostic business is experiencing growth, particularly with the JBT-one benchtop tester, which is expected to contribute additional service-related revenue [14][15] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has risen to 12.8 years, leading to increased replacement opportunities [10] - Vehicle registrations in 2024 surpassed 16 million for the first time since 2019, indicating a favorable market environment [10] - The company is well-positioned in the Mexican market, with increased demand for aftermarket parts and strong relationships with U.S.-based retailers [14] Company Strategy and Development Direction - The company is focused on mitigating tariff impacts through price increases and supply chain initiatives, aiming for strategic competitive advantages [6][8] - There is a strong emphasis on reducing dependency on Chinese suppliers, with less than 25% of products sourced from China [8][32] - The company aims to enhance shareholder value through cash generation, debt reduction, and share repurchases [7][19] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the outlook for non-discretionary aftermarket parts, expecting continued organic growth supported by favorable industry dynamics [16][17] - Tariffs are seen as a challenge, but management believes they can maintain rational pricing and continue to offer quality products [17][18] - The company anticipates net sales for fiscal year 2026 to be between $780 million and $800 million, representing year-over-year growth of 35.6% [27] Other Important Information - The company repurchased 542,134 shares for $4.8 million at an average price of $8.91 during fiscal year 2025 [7] - Non-cash expenses related to foreign exchange and tariffs have impacted financial results, but management is focused on minimizing these expenses [11][21] Q&A Session Summary Question: How do tariffs potentially help market share? - Management indicated that they have adjusted their supply chain to be less dependent on China, which positions them favorably compared to competitors who rely on U.S. inventory [32][33] Question: Impact of customer price increases on gross margin? - Management acknowledged that while tariffs may slightly negatively impact gross margin, other initiatives are expected to offset this effect [35] Question: Clarification on tariff impacts and price increases? - Management noted that the timing of tariff impacts is unpredictable but expects to see improvements as price increases take effect [41][42] - Almost 100% of the price increases have been accepted by customers [43] Question: Expected margin expansion catalysts? - Management highlighted initiatives focused on reducing costs per unit and increasing sales per unit as key drivers for margin expansion [44][45]

Financial Data and Key Metrics Changes - Net sales increased by 5.5% to a record $757 million for fiscal year 2025, with fourth-quarter net sales rising by 1.9% to $193.1 million [20][21] - Gross profit for fiscal year 2025 increased by 16.1% to a record $153.8 million, with fourth-quarter gross profit rising by 10.6% to $38.5 million [20][21] - Cash flow from operating activities was $45.5 million, and net bank debt was reduced by $32.6 million to $81.4 million [20][28] - The company repurchased 542,134 shares for $4.8 million at an average price of $8.91 [7][20] Business Line Data and Key Metrics Changes - The hard parts business, particularly in rotating electrical components, continues to perform well, driven by the non-discretionary nature of products [9][10] - Brake-related applications are the second-largest product category, showing strong performance supported by quality and customer service [10][18] - The diagnostic business is experiencing growth, particularly with the JBT-one benchtop tester, which is expected to generate additional service-related revenue [14][15] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has risen to 12.8 years, leading to increased replacement opportunities [10] - Vehicle registrations in 2024 surpassed 16 million for the first time since 2019, exceeding scrappage rates [10] - The company is gaining momentum in the Mexican market, with increased demand for aftermarket parts [14] Company Strategy and Development Direction - The company is focused on reducing dependency on Chinese supply chains, with less than 25% of products sourced from China [8][32] - Strategies are in place to enhance competitive edge, including direct shipping from factories to mitigate tariff impacts [33] - The company aims to leverage its strong market position and operational efficiencies to drive sales growth and margin improvement [12][18] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about future growth, citing favorable long-term industry dynamics for non-discretionary aftermarket parts [15][49] - The company expects continued organic growth supported by favorable market conditions and operational efficiencies [17][28] - Tariffs are seen as a challenge, but management believes they can be offset through pricing strategies and operational adjustments [16][42] Other Important Information - The company experienced a net loss of $19.5 million for fiscal year 2025, primarily due to non-cash expenses and one-time cash expenses [26][27] - EBITDA for fiscal year 2025 was $50.3 million, impacted by non-cash and one-time cash expenses [27] - The company expects net sales for fiscal year 2026 to be between $780 million and $800 million, representing year-over-year growth of 3.5% to 5.6% [28] Q&A Session Summary Question: How do tariffs potentially help market share? - Management indicated that they have adjusted their supply chain to be less dependent on China, which positions them favorably compared to competitors who may face higher cash requirements due to tariffs [32][33] Question: Impact of customer price increases on gross margin? - Management acknowledged that while tariffs may slightly negatively impact gross margin, other initiatives to expand gross margin should offset this effect [35][36] Question: Clarification on tariff impacts and price increases? - Management noted that the timing of tariff impacts is unpredictable but expects that most price increases have been accepted [42][44] Question: Expected margin expansion catalysts? - Management highlighted initiatives focused on lowering costs per unit and increasing sales per unit as key drivers for margin expansion [45][46]