Financial Performance - Consolidated net sales for the three months ended September 30, 2025, were $221,470,000, an increase of $13,284,000, or 6.4%, from $208,186,000 in the same period of 2024[115] - Gross profit for the three months ended September 30, 2025, was $42,727,000, representing a gross margin of 19.3%, compared to $41,277,000 and 19.8% in 2024[116] - Operating income for the three months ended September 30, 2025, was $16,371,000, an increase from $12,520,000 in the same period of 2024[123] - Consolidated net sales for the six months ended September 30, 2025, were $409,834,000, an increase of $31,761,000, or 8.4%, from $378,073,000 in 2024[130] - Consolidated operating income increased to $36,440,000 for the six months ended September 30, 2025, compared to $6,064,000 for the same period in 2024[137] Cash Flow and Expenses - Cash flow provided by operations for the six months ended September 30, 2025, was $31,893,000, a significant increase from $2,011,000 in 2024[128] - Sales and marketing expenses increased by $1,738,000, or 15.4%, to $13,021,000 for the six months ended September 30, 2025, compared to $11,283,000 for the same period in 2024[134] - Research and development expenses for the three months ended September 30, 2025, were $3,928,000, an increase of $1,485,000, or 60.8%, from $2,443,000 in 2024[121] - Research and development expenses rose by $2,358,000, or 48.4%, to $7,234,000 for the six months ended September 30, 2025, from $4,876,000 in 2024[135] - General and administrative expenses for the three months ended September 30, 2025, were $17,086,000, an increase of $2,034,000, or 13.5%, from $15,052,000 in 2024[119] Tax and Interest - The effective tax rate for the three months ended September 30, 2025, was 252.2%, compared to (44.7)% in 2024, primarily impacted by changes in valuation allowance on deferred tax assets[126] - The effective tax rate for the six months ended September 30, 2025, was 87.0%, compared to an effective tax rate of (3.6)% in 2024[140] - Interest expense for the three months ended September 30, 2025, was $12,699,000, a decrease of $1,483,000, or 10.5%, from $14,182,000 in 2024[124] - Interest expense decreased by $3,058,000, or 10.7%, to $25,511,000 for the six months ended September 30, 2025, from $28,569,000 in 2024[138] Inventory and Capital Expenditures - Finished goods turnover (annualized) for the three months ended September 30, 2025, was 4.8, up from 4.1 in 2024[114] - Total capital expenditures were $3,866,000 for the six months ended September 30, 2025, up from $1,219,000 in 2024[158] - The company expects to incur approximately $7,000,000 in capital expenditures during fiscal 2026 to support global growth initiatives[158] Corporate Governance and Compliance - The Board appointed Douglas Trussler as a director in connection with the issuance of Convertible Notes on March 31, 2023[160] - The company is evaluating the impact of new accounting standards issued by the FASB, including ASU 2023-06 and ASU 2023-09, which will affect financial statement disclosures starting in fiscal years after December 15, 2024[163][164] - The FASB issued ASU 2024-03, requiring the disaggregation of income statement expenses, effective for annual reporting periods beginning after December 15, 2026[165] - The company is assessing the implications of ASU 2025-05 regarding the measurement of credit losses for accounts receivable, effective for annual periods beginning after December 15, 2025[167] - There have been no material changes in market risk from the previous disclosures in the Annual Report on Form 10-K as of March 31, 2025[169] Lease and Rent Expenses - The company renewed its operating lease for a 35,000 square foot facility in Ontario, Canada, for an additional three-year period starting January 1, 2025, with rent expenses of $94,000 and $81,000 for the three months ended September 30, 2025 and 2024, respectively[159] - The company recorded rent expenses of $187,000 and $162,000 for the six months ended September 30, 2025 and 2024, respectively[159]

Financial Data and Key Metrics Changes - Net sales for Q2 2026 increased by 6.4% to $221.5 million from $208.2 million in the prior year [13][14] - Gross profit for Q2 2026 increased by 3.5% to a record $42.7 million from $41.3 million a year earlier [15] - Operating income for Q2 2026 increased by 30.8% to $16.4 million from $12.5 million in the prior year [17] - Net bank debt decreased by $17.7 million to $56.7 million during Q2 2026 [23] - EBITDA for Q2 2026 was $16.5 million, reflecting $6.3 million of non-cash expenses [19] Business Line Data and Key Metrics Changes - The brake offerings category, particularly brake calipers, is experiencing strong market share growth [6][10] - Heavy-duty business is gaining momentum, with increased demand for aftermarket products in Mexico [8] - The diagnostic business is also growing, with the JBT1 benchtop tester leading the industry [8] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has risen to 12.8 years, increasing replacement opportunities for aftermarket parts [5] - The number of vehicles on the road increased to 293.5 million from 289 million a year ago [5] Company Strategy and Development Direction - The company aims to be the leading supplier of non-discretionary automotive aftermarket parts, focusing on continuous improvement and shareholder value [4][5] - There is a strong emphasis on leveraging financial strength and operational footprint to gain competitive advantage [5] - The company is committed to enhancing margins through cost reduction initiatives and strategic supply chain sourcing [9] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about future growth opportunities despite recent consumer demand deferrals [10][27] - The company expects to maintain momentum and meet annual guidance expectations [27] - Management believes that non-discretionary products will continue to see demand despite some short-term deferrals [29] Other Important Information - The company repurchased 90,114 shares for $1.4 million at an average price of $15.41 during Q2 2026 [24] - Non-cash expenses impacted net loss for Q2 2026, which was $2.1 million, or $0.11 per share [18] Q&A Session Summary Question: Impact of deferral on the quarter - Management acknowledged a temporary deferral of purchases from a customer due to operational changes, expecting to recover this in the second half of the year [26][27] Question: Consumer behavior and demand deferral - Management noted that while there is some deferral in discretionary spending, their products are non-discretionary, meaning essential replacements cannot be delayed for long [29][30] Question: Market share trends and First Brands situation - Management indicated no major changes in market share but noted that brake-related products are gaining momentum [31] Question: Future cash flow utilization and debt levels - Management expressed intent to continue share repurchases if undervaluation persists and confirmed that debt levels are low and will continue to decrease [32][33]

Group 1 - The article does not provide any specific content related to a company or industry [1]

Financial Performance - Net sales for the fiscal 2026 second quarter increased by $13.3 million, or 6.4%, to $221.5 million from $208.2 million in the prior year[4] - Gross profit reached a record $42.7 million, up 3.5% from $41.3 million a year earlier, with a gross margin of 19.3% compared to 19.8% in the prior year[5] - Operating income increased by 30.8% to $16.4 million from $12.5 million in the prior year[5] - For the six-month period, net sales increased by $31.8 million, or 8.4%, to a record $409.8 million from $378.1 million[12] - Gross profit for the six-month period increased to a record $76.6 million from $70.5 million a year earlier, with a gross margin of 18.7% compared to 18.6% in the prior year[13] - GAAP net loss for the three months ended September 30, 2025, was $2,149,000, compared to a net loss of $2,954,000 for the same period in 2024, showing an improvement of 27.2%[30] - GAAP gross profit for the three months ended September 30, 2025, was $42,727,000, with a gross margin of 19.3%, slightly down from $41,277,000 and 19.8% in 2024[34] - GAAP net loss for Q3 2025 was $2,149,000, an improvement from a loss of $2,954,000 in Q3 2024[36] Cash Flow and Debt Management - Generated $21.9 million of cash from operating activities and reduced net bank debt by $17.7 million to $56.7 million[6] - Interest expense decreased by $1.5 million to $12.7 million from $14.2 million a year ago, reflecting lower average outstanding balances and interest rates[7] - Interest expense for the first half of 2025 was $25,511,000, down from $28,569,000 in the same period of 2024[36] Shareholder Value and Equity - The company repurchased 90,114 shares for $1.4 million at an average price of $15.41 during the fiscal 2026 second quarter[16] - The company anticipates further opportunities to enhance shareholder value through improved profitability and strong cash generation[16] - The company reported a GAAP net income of $893,000 for the six months ended September 30, 2025, contrasting with a net loss of $21,039,000 in the same period of 2024[32] - The company’s retained earnings increased to $20,926,000 as of September 30, 2025, up from $20,033,000 on March 31, 2025, indicating a growth of 4.4%[26] Asset and Liability Management - Total assets increased to $989,968,000 as of September 30, 2025, up from $957,636,000 on March 31, 2025, representing a growth of 3.9%[26] - Total current assets rose to $546,732,000 as of September 30, 2025, compared to $511,471,000 on March 31, 2025, marking an increase of 6.9%[26] - Total liabilities increased to $731,432,000 as of September 30, 2025, up from $699,937,000 on March 31, 2025, reflecting a rise of 4.5%[26] Non-Cash and Cash Items Impacting Income - Non-cash items impacting net income for the three months ended September 30, 2025, totaled $4,759,000, compared to $7,957,000 in 2024[30] - Cash items impacting net income for the six months ended September 30, 2025, amounted to $1,593,000, compared to $3,328,000 in 2024[32] - Total non-cash items impacting EBITDA for Q3 2025 amounted to $6,345,000, compared to $10,609,000 in Q3 2024[36] - Cash items impacting EBITDA for Q3 2025 totaled $698,000, while Q3 2024 recorded $1,498,000[36] Expenses and Cost Management - Depreciation and amortization expenses for the first half of 2025 were $4,822,000, down from $5,330,000 in the same period of 2024[36] - Core and finished goods premium amortization for Q3 2025 was $2,988,000, an increase from $2,621,000 in Q3 2024[36] - Share-based compensation expenses rose to $1,984,000 in Q3 2025, compared to $1,016,000 in Q3 2024[36] - The company incurred net tariff costs of $698,000 for products sold before price increases were effective in Q3 2025[36] - The company reported a significant foreign exchange impact of lease liabilities and forward contracts, with a negative effect of $(1,469,000) in Q3 2025[36] EBITDA Performance - EBITDA for the six months ended September 30, 2025, was positively impacted by a change in fair value of compound net derivative liability amounting to $4,050,000[32] - EBITDA for Q3 2025 increased to $16,484,000, up 11.8% from $14,741,000 in Q3 2024[36]

Summary of Motorcar Parts of America FY Conference Call Company Overview - **Company**: Motorcar Parts of America (NasdaqGS:MPAA) - **Industry**: Automotive aftermarket parts, focusing on diagnostic business, electric powertrains, and remanufacturing Key Points Financial Performance - The company reported a **free cash flow** of **$385 million** for the year, representing over **10%** of its **$3.3 billion** equity capitalization [3][4] - The **EBIT margin** for Q3 was **14.7%**, highlighting strong profitability compared to competitors in the automotive space [1][2] Growth Strategy - The company aims to expand into **new industries**, particularly in **industrial applications**, which could lead to a re-rating of the company in the future [2] - A **billion-dollar target** for new electric products by **2030** remains unchanged, with a focus on efficient electric mobility solutions [6] Market Positioning - The company has a **B2B branding strategy**, serving **60%** of revenue to professional installers and **40%** to DIY markets [14] - The remanufacturing process is emphasized as a way to provide original equipment quality parts, which are essential for older vehicles [18][19] Supply Chain and Manufacturing - The company has diversified its manufacturing footprint, reducing reliance on China and increasing production in **Mexico** and **Malaysia** [23][24] - The company is well-positioned to mitigate tariff impacts due to its flexible manufacturing capabilities [23][24] Pricing and Consumer Demand - The company is successfully passing through cost increases to consumers, emphasizing the non-discretionary nature of its products [26] - There is concern about consumer behavior shifting towards cheaper alternatives, but the company maintains that its products are essential for vehicle operation [42][43] Product Expansion - The company has expanded into the **brake business**, which has seen significant growth and margin improvement opportunities [31][32] - The diagnostic business is projected to become a **$100 million-plus** business, with plans to enhance its presence in retail stores [46][47] Future Outlook - The company is optimistic about returning to **pre-COVID gross margins** of over **20%**, driven by operational efficiencies and market opportunities [50] - There is a focus on **organic growth** and share repurchases, with a strong liquidity position allowing for strategic investments [52][53] Challenges and Considerations - The company acknowledges potential challenges from changing tariffs and trade agreements but believes it has the flexibility to adapt [38][40] - The impact of inflation and consumer purchasing behavior on demand for non-discretionary parts is being monitored closely [41][43] Additional Insights - The company plans to hold an **Investor Day** in **2026** to provide updates on its strategy and performance [7] - The management emphasizes the importance of maintaining a strong balance sheet and generating cash flow for future opportunities [27][52]

Core Insights - The article focuses on Motorcar Parts of America (NASDAQ: MPAA), highlighting its unique business model in the remanufacturing sector [1]. Company Overview - Motorcar Parts of America specializes in remanufacturing, which is a process that restores used parts to like-new condition, thus contributing to sustainability and cost-effectiveness in the automotive industry [1]. Investment Approach - The investment strategy discussed emphasizes a mix of long-term conviction holdings and tactical sector rotations, suggesting that successful investing is more about profitability than merely being correct [1].

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)