UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 001-33861 MOTORCAR PARTS OF AMERICA, INC. (Exact name of registrant as specified in its charter) New York 11-2153962 (State or other jurisdiction ...

Core Insights - The company maintains a strong financial position and competitive advantages in the retail and professional automotive industry, with a focus on enhancing its leadership position and capitalizing on the aging vehicle population in the U.S. [1] - Despite a temporary setback in sales due to a major customer's reduced orders, the company remains optimistic about future growth and has secured new business commitments [3][4] - The company is exploring strategic alternatives for its EV emulator business, which is considered a noncore asset, while focusing on its primary market of nondiscretionary automotive aftermarket parts [2][18] Financial Performance - The average age of U.S. light vehicles has increased to 12.8 years, and the number of vehicles on the road has risen to 295.9 million, indicating a growing market for replacement parts [1] - The company has revised its fiscal 2026 sales guidance down to between $750 million and $760 million due to a significant customer’s store closures, which represent a 15% reduction in expected sales [9][20] - Gross margin for the fiscal third quarter was reported at 19.6%, down from 24.1% a year earlier, but showed improvement from 18.0% in the first quarter and 19.3% in the second quarter [12][13] Operational Efficiency - The company is focused on increasing operational efficiencies to enhance margins, including tariff mitigation initiatives and relocating operations to lower-cost facilities [14][16] - Cash flow generation remains strong, with $23.7 million generated over the first nine months of the fiscal year and a reduction in net bank debt by $10.9 million [15] - The company has repurchased 669,472 shares for $8.4 million, indicating a commitment to enhancing shareholder value [18] Market Opportunities - There is an anticipated increase in replacement opportunities as vehicle owners hold onto their cars longer, which is expected to benefit the company’s aftermarket parts business [5] - The heavy-duty aftermarket segment is experiencing increased demand, particularly in Mexico, where the vehicle population has grown by 2.8% to approximately 36 million vehicles [6] - The company is optimistic about the growth potential in its diagnostic business, with expectations for increased service-related revenue from software and database updates [7]

Core Insights - The company expects fiscal 2026 sales to be impacted by approximately $50 million due to store closures and distribution center consolidation, leading to a revised sales guidance of $750–760 million and operating income of $72–79 million [1][6][12] Financial Performance - The third-quarter performance fell short of expectations primarily due to a significant sales disruption from a large customer, although demand is beginning to recover [3][6] - Gross margin decreased to 19.6% from 24.1% year-over-year, but showed sequential improvement from 18.0% in Q1 to 19.6% in Q3, with management expecting further gains [5][8][10] - The company generated $23.7 million in cash over the first nine months of fiscal 2026 and reduced net bank debt to $70.5 million, maintaining a net bank debt-to-EBITDA ratio of 0.84 [4][13][16] Strategic Focus - The company aims to be a leading supplier of nondiscretionary automotive aftermarket parts, benefiting from an aging vehicle fleet, with the average age of U.S. light vehicles increasing to 12.8 years [17] - Growth initiatives include expanding the Quality-Built offering, momentum in the Heavy Duty business, and demand growth in Mexico, where the vehicle count increased by 2.8% year-over-year [17][18] - The company is exploring strategic alternatives for its EV Emulator business, which is considered a non-core asset, while investing in next-generation technology for the EV market [20] Future Outlook - The company plans to provide fiscal 2027 guidance during its fiscal year-end call in June and remains optimistic about future growth despite current challenges [21]

Financial Data and Key Metrics Changes - The company revised its fiscal 2026 sales guidance down to between $750 million and $760 million, impacted by approximately $50 million due to a large customer's store closures and distribution center consolidation [11][12] - Operating income is expected to be between $72 million and $79 million, with gross margin reported at 19.6%, down from 24.1% a year earlier, but up sequentially from 18.0% in the first quarter and 19.3% in the second quarter [14][15] Business Line Data and Key Metrics Changes - The braking business is expected to see gains that will increase overall margins due to operating efficiencies and facility utilization [5] - The EV Emulator business is being explored for strategic alternatives as it is considered a non-core asset [18][37] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has risen to 12.8 years, with the number of vehicles on the road increasing to 295.9 million, indicating a growing market for replacement parts [7][8] - In Mexico, the vehicle market has approximately 36 million vehicles, with an average age of 16.2 years, showing increased demand for aftermarket parts [9] Company Strategy and Development Direction - The company aims to enhance its leadership position in the nondiscretionary automotive aftermarket parts sector, focusing on operational efficiencies and market share growth [7][40] - Strategic initiatives include growing sales of existing product lines, improving operational efficiencies, mitigating tariffs, and increasing cash conversion [40][41] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovering sales from a large customer and highlighted strong liquidity and operational fundamentals [4][6] - Despite recent headwinds, the company remains bullish about its outlook and is focused on leveraging its global operational footprint to meet demand [40][41] Other Important Information - The company generated cash of $23.7 million for the nine-month period, with net bank debt decreasing by $10.9 million to $70.5 million [16][17] - The company repurchased 669,472 shares for $8.4 million at an average price of $12.47 [18] Q&A Session Summary Question: Impact of sales disruption from a large customer - Management indicated that the sales disruption was largely a one-time event, with a 15% reduction in store numbers expected to impact future sales [25] Question: Market share opportunities due to competitor store closures - Management confirmed that they expect to gain market share as a result of competitor store closures [26] Question: Guidance for operating income and gross margins - Management expects gross margins to increase sequentially in the fourth quarter, alongside reductions in total operating expenses [34] Question: Currency impact on operating expenses - Management noted that the strengthening peso would have a non-cash impact on lease liabilities but would be accounted for separately [35] Question: Non-strategic asset divestiture - Management discussed the potential divestiture of the EV Emulator business, which does not align with their focus on aftermarket parts [37]

Financial Data and Key Metrics Changes - The company revised its fiscal 2026 sales guidance down to between $750 million and $760 million, impacted by approximately $50 million due to a large customer's store closures and distribution center consolidations [11][12] - Operating income is expected to be between $72 million and $79 million, with gross margin reported at 19.6%, down from 24.1% a year earlier, but showing a sequential increase from 18.0% in the first quarter and 19.3% in the second quarter [14][15] Business Line Data and Key Metrics Changes - The braking business is expected to see gains that will increase overall margins due to operating efficiencies and facility utilization [5] - The Heavy Duty business is experiencing increased demand for aftermarket parts, particularly in Mexico, where the vehicle population has grown to approximately 36 million, with an average age of 16.2 years [9] Market Data and Key Metrics Changes - The average age of U.S. light vehicles has risen to 12.8 years from 12.5 years in 2024, indicating a growing opportunity for replacement parts as consumers hold onto their vehicles longer [7][8] - The number of vehicles on the road in the U.S. climbed to 295.9 million from 291.1 million a year ago, suggesting increased demand for aftermarket parts [8] Company Strategy and Development Direction - The company is focused on being the leading supplier of nondiscretionary automotive aftermarket parts, leveraging its strong liquidity and operational footprint to enhance market share [7][10] - Strategic alternatives are being explored for the EV Emulator business, which is considered a non-core asset, as the company aims to concentrate on its aftermarket focus [10][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovering sales from a large customer and highlighted the positive momentum in the overall outlook despite recent challenges [4][5] - The company remains committed to enhancing shareholder value through share repurchases and debt reduction, with a strong liquidity position of approximately $146 million [16][17] Other Important Information - The company generated cash of $23.7 million for the nine-month period, with net bank debt decreasing by $10.9 million to $70.5 million [16][18] - The company plans to provide guidance for fiscal 2027 during the year-end call in June [16] Q&A Session Summary Question: Impact of sales disruption from a large customer - Management indicated that the sales disruption was largely a one-time event, with a 15% reduction in store numbers for the customer, but they remain optimistic about future growth [25] Question: Market share opportunities due to competitor store closures - Management confirmed that they expect to gain market share as competitors close stores, and they are well-positioned to capture fair share in the market [26] Question: Guidance for operating income and gross margins in Q4 - Management expects gross margins to increase sequentially in Q4, alongside reductions in total operating expenses, which will help meet guidance [34] Question: Currency impact on operating expenses - Management acknowledged that the strengthening peso will have a non-cash impact on lease liabilities but will be accounted for separately [35] Question: Non-strategic asset divestiture - Management discussed the potential divestiture of the Electric Vehicle Emulation business, which does not align with their focus on the aftermarket [37]

Financial Data and Key Metrics Changes - The company revised its fiscal 2026 sales guidance down to between $750 million and $760 million, impacted by approximately $50 million due to a large customer's store closures and distribution center consolidations [11][12] - Operating income is expected to be between $72 million and $79 million, with depreciation and amortization of approximately $10 million [11] - Gross margin decreased to 19.6% compared to 24.1% a year earlier, but increased sequentially from 18.0% in the first quarter and 19.3% in the second quarter [13][14] Business Line Data and Key Metrics Changes - The braking business is expected to see increased margins due to operating efficiencies and facility utilization [5] - The EV Emulator business is being explored for strategic alternatives as it is considered a non-core asset [18] Market Data and Key Metrics Changes - The average age of U.S. light vehicles rose to 12.8 years from 12.5 years in 2024, indicating increased replacement opportunities [7] - The number of vehicles on the road increased to 295.9 million from 291.1 million a year ago, suggesting a growing market for aftermarket parts [8] Company Strategy and Development Direction - The company aims to be the leading supplier of nondiscretionary automotive aftermarket parts, leveraging its financial strength and reputation [6] - Strategic initiatives include growing sales of existing product lines, improving operational efficiencies, mitigating tariffs, and increasing cash conversion [40] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovering sales from a large customer and highlighted the positive momentum in the overall outlook despite recent challenges [4][5] - The company remains focused on enhancing shareholder value through capital deployment, including share repurchases and debt reduction [5][17] Other Important Information - The company generated cash of $23.7 million for the nine-month period, with net bank debt decreasing by $10.9 million to $70.5 million [16] - Liquidity remains strong with total cash and availability of approximately $146 million as of December 31, 2025 [17] Q&A Session Summary Question: Impact of sales disruption from a large customer - Management indicated that the sales disruption is largely a one-time event, with a 15% reduction in store numbers expected to impact future sales [25] Question: Market share opportunities due to competitor store closures - Management confirmed that they expect to gain market share as competitors close stores, leveraging their existing market presence [26] Question: Guidance for operating income and gross margins in Q4 - Management expects gross margins to increase sequentially in Q4, alongside reductions in total operating expenses [34] Question: Currency impact on operating expenses - Management noted that the strengthening peso will have a non-cash impact on lease liabilities but will be accounted for separately [35] Question: Non-strategic asset divestiture - Management discussed the potential divestiture of the EV Emulator business, which does not align with their focus on the aftermarket [37]

Financial Performance - Net sales for the fiscal 2026 third quarter were $167.7 million, down from $186.2 million in the prior year, reflecting a decrease of approximately $17 million due to reduced ordering from a large customer[3]. - Gross profit for the fiscal 2026 third quarter was $32.9 million, compared to $44.9 million a year earlier, resulting in a gross margin of 19.6%, down from 24.1%[4]. - Operating income for the fiscal 2026 third quarter was $8.3 million, a decrease from $17.6 million in the prior year, while interest expense decreased by $3.5 million to $10.9 million[6]. - Net income for the fiscal 2026 third quarter was $1.8 million, or $0.09 per diluted share, compared to $2.3 million, or $0.11 per diluted share, in the prior year[7]. - For the nine-month period, net sales increased by $13.3 million, or 2.4%, to $577.5 million, despite a $40 million decrease from the previously noted customer[12]. - Gross profit for the nine-month period was $109.5 million, with a gross margin of 19.0%, down from 20.4% a year earlier[14]. - GAAP net income for the three months ended December 31, 2025, was $1.78 million, or $0.09 per diluted share, compared to $2.29 million, or $0.11 per diluted share for the same period in 2024, reflecting a decrease of 22.4%[32]. - For the nine months ended December 31, 2025, GAAP net income was $2.67 million, or $0.13 per diluted share, a recovery from a loss of $18.75 million, or $(0.95) per diluted share in 2024[33]. - GAAP gross profit for the three months ended December 31, 2025, was $32.88 million, with a gross margin of 19.6%, down from $44.88 million and a gross margin of 24.1% in 2024[35]. - The company reported a GAAP gross profit of $109.52 million for the nine months ended December 31, 2025, with a gross margin of 19.0%, down from $115.33 million and a margin of 20.4% in 2024[36]. Cash Flow and Debt Management - The company generated cash of approximately $23.7 million for the nine-month period and reduced net bank debt by $10.9 million to $70.5 million[10]. - Cash items impacting net income for the nine months ended December 31, 2025, amounted to $1.89 million, compared to $3.33 million in 2024, showing a decrease in cash-related impacts[33]. - Total current liabilities increased to $390.79 million as of December 31, 2025, from $351.03 million on March 31, 2025, marking an increase of 11.3%[28]. - The company’s total liabilities rose to $732.76 million as of December 31, 2025, compared to $699.94 million on March 31, 2025, reflecting a growth of 4.7%[28]. - The company’s retained earnings increased to $22.70 million as of December 31, 2025, up from $20.03 million on March 31, 2025, indicating a growth of 13.3%[28]. Future Outlook - The company is revising its fiscal 2026 sales guidance to between $750 million and $760 million, with operating income expected to be between $72 million and $79 million[19]. - The company anticipates further opportunities to enhance shareholder value through improved profitability and a return to normal ordering activity[18]. - Significant new business commitments are expected due to changes in the competitive landscape, including the bankruptcy of a competitor and increased demand for replacement parts[5]. Non-Cash and Other Financial Items - Non-cash items impacting net income for the three months ended December 31, 2025, totaled $313,000, compared to $4.96 million in 2024, indicating a significant reduction in non-cash impacts[32]. - Total non-cash items impacting EBITDA for Q3 2025 amounted to $418,000, significantly lower than $6,615,000 in Q3 2024[37]. - The company incurred new product line start-up costs of $397,000 in Q3 2025, compared to $4,438,000 in the same quarter of the previous year[37]. - Depreciation and amortization for Q3 2025 was $2,359,000, slightly down from $2,532,000 in Q3 2024[37]. - Income tax expense for Q3 2025 was $(434,000), a significant decrease from $1,115,000 in Q3 2024[37]. EBITDA Performance - EBITDA for Q3 2025 was $14,603,000, down from $20,373,000 in Q3 2024, representing a decline of approximately 28%[37]. - Total EBITDA for the nine months ended December 31, 2025 was $51,815,000, an increase from $33,967,000 in the same period of 2024[37].

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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]