MPAA Q4 2026 Earnings Call Transcript

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DATE

Monday, June 8, 2026 at 1 p.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — Selwyn H. Joffe
• Chief Financial Officer — David Lee

TAKEAWAYS

• Net Sales -- Increased by 9.9% for the quarter and 4.3% for the year, driven by strong sales momentum and new business commitments.
• Gross Profit -- Rose 30.9% for the quarter and 3.9% for the year, reflecting margin improvements and operational efficiencies.
• Gross Margin -- Improved to 23.7% for the quarter (from 19.9% in the prior year), with noncash expenses accounting for a 1.8% impact and onetime items for 0.3%; adjusted gross margin reached 25.8%.
• Operating Income -- Increased 29.4% for the quarter and 64.9% for the year; operating income was $65.8 million, or $76.6 million before noncash and onetime adjustments.
• Net Income -- Reached $9.7 million for the quarter, versus a net loss of $722,000 in the same period last year; annual net income was $12.4 million, reversing a $19.5 million loss.
• Cash Flow from Operations -- Negative $4.5 million in the quarter due to a $32.5 million increase in accounts receivable from strong late-quarter sales; full-year operating cash flow was $19.2 million.
• Working Capital Changes -- Inventory ramp-up and increased receivables drove a $37.8 million working capital use for the year.
• Net Bank Debt -- Reduced to $80 million, despite $11.4 million spent on share repurchases; net bank debt to EBITDA ratio was 0.93.
• Liquidity -- Cash and availability totaled approximately $133.7 million at fiscal year end.
• Share Repurchases -- 956,000 shares repurchased for $11.4 million, with $22.1 million remaining under the current authorization.
• Guidance for Next Year -- Net sales expected to grow 7.5%-10.2% to $780 million-$800 million; annualized net sales projected to exceed $900 million by fiscal year-end with over $100 million in additional opportunities not yet included in guidance.
• Operating Income Guidance -- Projected between $86 million-$91 million, up 12.3%-18.8%; EBITDA forecasted at $95 million-$100 million with depreciation and amortization estimated at $9 million.
• Brake Business -- Management identified the brake product line as "unfolding in a bigger way than even we anticipated," signifying increasing margin accretion.
• Heavy Duty Relocation -- Transition of heavy duty operations from Canada to Mexico commenced in the latter part of the year to enhance operating efficiency.
• EV-Emulated Business -- Strategic alternatives are being explored for this noncore business, which secured new original equipment (OE) customer commitments.
• Industry Tailwinds -- Average U.S. vehicle age increased to 12.8 years and total vehicles on the road reached 295.9 million, supporting ongoing demand for replacement parts.

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RISKS

• Selwyn H. Joffe noted, "A customer did shut down about 15% of their stores. So our estimate is that a baseline is now 85% of previous revenues," indicating a lasting revenue reduction from this channel.
• Selwyn H. Joffe acknowledged, "We have seen some milder weather that affects sales. And, again, we have seen other public reports come out talking about milder weather and affecting sales," highlighting sensitivity to weather conditions.
• Guidance incorporates potential negative macro factors such as "higher fuel prices affecting miles driven" and uncertain tax refund effects on consumer spending.

SUMMARY

Motorcar Parts of America (NASDAQ:MPAA) reported strong year-end growth in net sales, gross profit, and operating income, supported by efficiency improvements and new business contracts. Management expects continued expansion, projecting marked sales growth, further margin accretion from the brake segment, and ongoing deleveraging as accounts receivable normalize post inventory ramp. Leadership also highlighted significant opportunities related to the competitor bankruptcy and the high average age of U.S. vehicles while actively evaluating strategic options for the EV-emulated business. The company closed the year with robust liquidity and a capital allocation focus on share repurchases and operational investment.

• Management clarified that a substantial portion of the incremental $100 million annualized revenue opportunity is tied to competitor bankruptcy-driven demand shifts, with additional organic growth expected.
• The delayed customer inventory transition due to liquidation is expected to cause a second-half ramp-up, creating uneven distribution of sales gains across the fiscal year.
• Guidance excludes new potential business contracts with uncertain timing, implying possible upside to fiscal year-end run-rate figures.
• EBITDA and operating income forecasts reflect currently enacted tariffs as of June 8, 2026, but do not factor in certain noncash or onetime items.
• Continuous supply chain optimization—including AI-driven working capital initiatives and relocation of heavy duty operations—is expected to positively impact future profitability.
• The growing installed base of the JBT-1 Bench-Top Tester signals an increasing presence in diagnostic equipment beyond North America.

INDUSTRY GLOSSARY

• OE (Original Equipment): Products or components supplied directly to vehicle manufacturers for initial installation or replacement under warranty programs.
• SKU: Stock Keeping Unit; refers to specific product variants enabling precise inventory tracking and assortment breadth.

Full Conference Call Transcript

Selwyn H. Joffe, chairman, president, chief executive officer, and David Lee, our chief financial officer. I would like to remind everyone of the safe harbor statement. Included in today's press release. Private Securities Litigation Reform Act of 2 thousand provides a safe harbor for certain forward looking statements, including statements made during today's conference call. Such forward looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There could be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward looking statements.

These forward looking statements involve significant risks and uncertainties, some of which are beyond the control of the company. And are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved, the company undertakes no obligation to publicly revise or update any forward looking statements whether as a result of new information, future events, otherwise. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the company's various filings with the Securities and Exchange Commission. With that, said, I would like to begin the call, turn it over to Selwyn H. Joffe.

Selwyn H. Joffe H. Joffe: Thank you, Gary. I appreciate everyone joining us today. As stated in our earnings release issued this morning, we ended the year with a strong fourth quarter and numerous new business commitments. Phasing in throughout fiscal 27. As well as exciting new additional pending business opportunities. Let me start by highlighting our meaningful financial accomplishments for the fourth quarter and year. Net sales increased 9.9% for the quarter and 4.3% for the year. Gross profit increased 30.9% for the quarter and 3.9% for the year. Gross margin increased to 23.7% for the quarter, and was 20.2% for the year. Operating income increased 29.4% for the quarter and 64.9% for the year.

Net income for the quarter was 9.7 million, compared with a net loss of 722 thousand a year ago. Our net income for the year was 12.4 million compared with a net loss of 19.5 million a year ago. We used cash from operating activities of 4.5 million in the quarter. This was primarily due to an increase in accounts receivable of 32.5 million reflecting strong sales towards the end of March. For the year, we generated cash from operating activities of 19.2 million We generated cash of 57 million before working capital use of 37.8 million. Working capital was impacted by an inventory ramp up for new business in the upcoming fiscal year.

And a large increase in accounts receivable at fiscal year end because of significantly strong sales. Late in the fourth quarter. We reduced net bank debt to $80 million despite repurchasing shares of 11.4 million for the year. David will discuss these metrics in more detail shortly. In short, we are encouraged by our achievements particularly in the fourth quarter. Our strategy remains focused on increasing profitability growing share, and neutralizing working capital. We believe accelerating gains in our brake related business will continue to support our overall margin goals. Supported by further efficiencies and increased utilization of our facility. We have a number of initiatives that we are exploring. Including utilizing AI to help neutralize working capital.

We expect to continue to generate positive cash flow on an annual basis. Over the last 3 years, we have generated more than 100 million of cash from operating activity. Which supports further debt reduction and share repurchases. While leveraging our strength to take advantage of additional opportunities in both the retail and traditional markets. We remain focused on gaining share across all product categories, by leveraging our leadership position. Our financial strength, and reputation. I might add that our Quality-Built brand products continue to gain name recognition and market share across the traditional distribution and repair market. Equally important, this growing brand name recognition within the professional aftermarket presents exciting opportunities for us to expand awareness and enhance loyalty.

Among customers and consumers both near and long term. In short, we offer our retail and traditional customers great products, industry leading SKU coverage and order fill rates, supported by value added merchandising and marketing support. I should mention that we continue to seek opportunities to support our customers leveraging our low cost footprint. As I have highlighted before, the average age of US light vehicles continues to rise. Most recent industry data shows that the average age has risen 12.8 years from 12.5 years in 2024. In addition, the number of vehicles on the road climbed to 295.9 million. From 291.1 million a year ago. We expect increased replacement opportunities for the life of vehicles.

Particularly with consumers holding on to their vehicle longer. In short, we are all committed and focused on our customers, offering quality products and services, with rational pricing. With regard to our heavy duty business, we continue to leverage our reputation and industry position in this market. Focused on opportunities to further enhance operating efficiencies and margin. Our vision is to leverage the reputation of our Quality-Built brand name. We anticipate this will build momentum and enhance our market position. Particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy duty aftermarket segment and the overall heavy duty rotating electrical market.

I should note that we commenced the relocation of our heavy duty operation. To Mexico from Canada in the latter part of fiscal 26. As part of our ongoing commitment to continuous improvement. And we look forward to further opportunities to enhance operating efficiencies as we complete the transition. In addition, we continue to experience increased demand for our aftermarket parts which complements our existing strategic operational and distribution footprint there. As our US based retailers and warehouse distributor customers, expand throughout Latin and South America, we are well positioned to benefit while supporting their growth. Regarding our diagnostic business, our JBT-1 Bench-Top Tester leads the industry. And the installed base is continuing to grow.

We also expect more opportunities outside North America as the business evolves. Including potential new applications that complement and leverage our technology. We believe the outlook is bright for nondiscretionary aftermarket parts for the internal combustion engine market and we are focused on leveraging our capability and capacity to offer a broad range of SKUs for all markets, all makes, and models with a newer or older vehicle. As I have previously mentioned, deferment is not really a long term option for our nondiscretionary products. If your car does not start or stop, you are not driving. We believe we have meaningful opportunities for further growth and profitability as the competitive landscape continues to change.

I would now like to turn the call over to David Lee.

David Lee: Thank you, Selwyn, and good morning, everyone. Let me begin by outlining several topics I want to discuss. We will go over analytics for the fiscal fourth quarter, sales momentum and opportunities, gross margin and operating income, cash flow, balance sheet, liquidity and debt leverage, share repurchases, potential strategic alternatives for our EV-emulated business, and guidance for the new fiscal year ending March 31, 2027. Let's start with analytics for the fiscal fourth quarter. Fiscal fourth quarter ended March 31, 2026, net sales, gross profit, gross margin, and profitability increased compared with a year ago. As we start the new fiscal year, we believe this momentum will continue for fiscal 2027.

From a sales perspective, as sales momentum increases, combined with new business commitments that Selwyn referenced earlier, as well as other meaningful opportunities we believe the company will benefit in several ways near term. Including favorable impact to gross margin, continued annual cash flow generation, net bank debt reduction and opportunities to increase shareholder value. In short, the fundamentals of our business are strong. Regarding gross margin, let me first discuss the fourth quarter in more detail. Gross margin was 23.7%, compared with 19.9% a year earlier, enhanced by an ongoing focus on cost reduction opportunities.

Gross margin was impacted by noncash expenses of 1.8%, and onetime items of 0.3%, as detailed in exhibit 3 of this morning's earnings press release. Excluding these noncash and certain onetime cash items, gross margin increased to 25.8%. Fiscal 2027 gross margin is expected to continue to be favorably impacted by increased sales, over absorption, and overall cost reductions and efficiencies impacted by product mix. Overall, regarding gross margin, we remain focused on overall gross margin accretion supported by strong momentum and greater utilization of brake related capacity.

We are also focused on positive impacts to overall margin, from further improvements in operating efficiency supported by benefiting from our tariff mitigation initiatives, better pricing for scrap sales as we gain more market share for our products additional opportunities to relocate certain operations to our low cost facilities globally, including Mexico. And further strategic cost reductions. These initiatives are expected to positively impact overall gross margin. Operating income for fiscal year 26 was 65.8 million Operating income was 76.6 million, before the impact of noncash expenses of 11.6 million and the benefit of onetime cash items of 791 thousand as detailed in exhibit 6 of this morning's earnings press release.

Regarding our cash flow, balance sheet, and liquidity, The 12 month period, cash generated from operating activities was 19.2 million As Selwyn previously indicated, we generated cash of $57 million before working capital use of 37.8 million Working capital was impacted by an inventory ramp up for new business, in the current new fiscal year, and a large increase in accounts receivable of $32.5 million for the fourth quarter, because of significantly strong sales late in the fourth quarter. After share repurchases of 11.4 million for fiscal year 26, the company's revolver loan of 94.7 million, less cash of 14.7 million, at March 31, 2026 resulted in net bank debt of 80 million.

The company has 22.1 million remaining to repurchase shares under its current authorized share repurchase program. For the 3 years ended March 31, 2026, the company generated cash from operating activities of approximately 103.8 million as Selwyn previously highlighted. Our liquidity remains strong with total cash and availability of approximately 133.7 million, as of 03/31/2026. We remain focused on increasing operating profit and gross margin and generating positive cash flow supported by growth and operating efficiencies from our global footprint. In addition to our goal of generating increased operating profits, including benefits from our gross margin expansion initiative, previously explained, we expect further opportunities to neutralize working capital.

Supported by customer product demand planning, enhanced inventory management, and extending our vendor payment terms, including growing our supply chain finance program offered to our vendors. Regarding our debt leverage, based on information in our filing today, EBITDA for the 12 months ended March 31, 2026 was 76.4 million. EBITDA before the impact of noncash and onetime cash expenses was 86.1 million for the same period. To recap, our net bank debt was 80 million at March 31, 2026, compared with EBITDA before the impact of noncash and onetime cash expenses. Mentioned above of 86.1 million for the 12 months ended March 31, 2026 resulting in a net bank debt to EBITDA ratio of 0.93.

We also committed to further opportunities to increase share repurchases. For the 12 month period, the company repurchased 956 thousand shares. For 11.4 million at an average share price of $11.88. With regard to our EV-emulated business, which is a noncore asset, we are continuing to explore strategic alternatives to capitalize on its proprietary industry leading technology including a state of the art next generation emulator. While we continue to explore strategic alternatives, we have secured prestigious new OE customer commitments for our emulated business. Regarding guidance, Motorcar Parts of America expects net sales for the fiscal year ending March 31, 2027 to increase between 7.5% to 10.2% year over year growth.

Reflecting the exclusion of certain nonrecurring items, including tariff pass throughs due to the reduction of import tariffs. And nonrecurring core revenue, representing net sales of between 780 million to 800 million. Current guidance includes new business commitments that are expected to ramp up in the second half of the fiscal year. The timing of the ramp up is due to customers taking advantage of liquidated inventory, purchased from a previous supplier. In addition, the company expects to add more than 100 million of additional annualized net sales by the end of fiscal 2027 which is not included in the guidance due to the uncertainty of the timing.

In summary, the company expects annualized net sales to be more than $900 million by the end of fiscal 2027. Operating income is expected to be between $86 million and 91 million representing between 12.3% to 18.8% year over year growth. And these estimates reflect the expected impact of tariffs enacted as of June 8, 2026 and do not include certain noncash items and onetime expenses. The company estimates depreciation and amortization will be approximately 9 million. Based on the above, the company expects EBITDA to be between 95 million and 100 million. For details on the results, refer to the earnings press release issued this morning I would now like to open the line for questions.

Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Brian Nagel from Oppenheimer. Your line is open.

Andrew Chaz: Hi. This is Andrew Cha, on for Brian Nagel. Thanks for taking our question. Really nice quarter here. Thank you. So I guess just 2 questions. You know, you referenced the competitor bankruptcy at a key driver for new business. So I guess the question is around the, you know, 100 million incremental opportunity. How much of that is directly tied to this dislocation And how would you describe the stickiness of that longer term And then I got a follow-up.

Selwyn H. Joffe H. Joffe: Yeah. I think a good proportion of that is, but we have also got some other good organic growth coming that is unrelated to that. So we are benefiting on both fronts.

Andrew Chaz: that is helpful. And then just as my follow-up, You discussed the larger customer ordering disruption that weighed on Q3 that it clearly seems to have normalized. So the relationship now fully back to baseline?

Selwyn H. Joffe H. Joffe: Or is there still some recovery volume that we should be thinking about Well, I think that again, you know, without getting into the specifics of the customer, I mean, that revenue came back. A customer did shut down about 15% of their stores. So our estimate is that a baseline is now 85% of previous revenues. Although the customers reported strong financial results in between our last calls. So we are optimistic, you know, overall for all of our customers. We think, I go back to the fundamentals and the statistics are that the car population continues to grow The average age of vehicles continues to grow, The car prices new car prices are up significantly.

And as a result, used car sales are going up. Their price has also gone up. So we see the fundamentals of people maintaining their vehicles, keeping them on the road, and we focus on nondiscretionary items. So we are bullish organically from the business as well as that we believe that there is some there is some challenge in the supply chain with over leveraged companies. So we think there is opportunity. that is really helpful. Thank you.

Operator: And, again, if you would like to ask a question, press Your next question comes from the line of Derek Soderberg from Cantor Fitzgerald. Your line is open.

Derek Soderberg: Yes. Hey, guys. Thanks for taking the questions. Just a quick clarification on gross margin for the quarter. I am actually getting 23.3%. I was wondering if you can clarify that. Just looking at exhibit 3, it looks like the cash and noncash impact's largely cancel each other out. It looks like you have got an impact that is negative, but it shows positive on the like a 30-basis point improvement. Just wondering if you can clarify that quick.

David Lee: Sure. So if you look at Exhibit 3 of this morning's earnings press release, our reported gross margin was 23.7% The noncash items had a 1.8% impact. So if you add that 1.8%, and also the cash items had a point 3%, So if you add the 1.8% and the point 3, to the 23.7, that gets you to 25.8%. Does that make sense?

Derek Soderberg: Yeah. I am seeing the cash impact as a negative 4 million. Negative 3.976.

David Lee: Right. So that is a good point. If you look at the letter a, the negative $6.5 million had a impact of negative 0.9%. We indicate that is the impact when you take into consideration both the sales and cost of goods sold impact. So the combined impact of sales and cost of goods sold on gross profit was a negative 0.9%. So the total impact was 0.3%. Unfavorable for the quarter that if you add to the noncash 1.8%, and add that to 23.7%, gets you to 25.8%.

Derek Soderberg: Got it. Okay. Okay. And so I will just I just changed that quick in the model. And so it looks like for the change year on year, sort of flattish on adjusted gross margin. I was wondering if you could maybe briefly review kind of the puts and takes on that. I know you guys have the brake business that is becoming very accretive to gross margin. But I know there are some tariff impacts in the year. I was just wondering if you can briefly kind of summarize the puts and takes on adjusted margin this year and then what we should maybe expect looking into fiscal 27 for gross margin.

David Lee: that is a good question. We continue to be focused on margin accretion. So this past quarter, we expand experienced not only cost reductions, efficiencies. We are very focused on efficiencies. So all the product lines, we are focused on becoming higher in gross margins. So we do expect in the new fiscal year, all those initiatives that we are undertaking, including continuing with cost reduction, becoming more efficient, all those will be positively contributing to gross margin.

Selwyn H. Joffe H. Joffe: Yeah. And then on the revenue side, we have got significant new business commitments as well as significant amount pending that we are optimistic about. But the timing of all of that, Derek, with the change in the supply chain, is making it difficult for us to estimate. So we are trying to give a baseline guidance and then sort of look at the year end run rate as significantly up.

Derek Soderberg: Got it. that is helpful. And then just 1 last quick 1. Is the inventory that some of your customers are working through that related to the First Brands? Yep. Issue. And so there was kind of a bankruptcy and there were maybe some cheap components out there that, you know, need to be worked through. Is that how we should think about it?

Selwyn H. Joffe H. Joffe: Yeah. So if you think about it, the customers who are already getting product from First Brands, as soon as they heard a problem, started buying in more and more inventory so that the transition from the new supplier would give them more time as the transition for the new supplier. We are ready to go. But our customers are reducing that inventory. They are all firm commitments. That we have. And we are shipping all those customers, but smaller quantities today. And as we get through the year, you will see significant ramp up in those volumes. But that relates to that liquidation. Yes. Awesome. Well, really appreciate it, guys. Thank you very much, Derek. Appreciate you.

David Lee: Thank you. Thank you.

Operator: Your next question comes from the line of Brian Nagel from Oppenheimer. Your line is open.

Andrew Chaz: Hey. I thought I would just squeeze 1 more quick follow-up if that is alright. Yeah. And I guess really just wanted to get your thoughts on, you know, bigger picture, the macro, and what is being contemplated within your guidance You know, on 1 hand, you have maybe a waning tax benefits from the end consumer. You have higher gas prices. and wanting you to maintain vehicles, potentially less miles driven on the road. How are you what macro factors are you considering as you are thinking about the next year ahead?

Selwyn H. Joffe H. Joffe: Yeah. I think we-- yeah. I mean, I think we to the extent that we are capable I mean, the status quo is what we are incorporating. I mean, we, you know, we see higher fuel prices affecting miles driven But, again, the point I was trying to make is we are nondiscretionary. There is some deferral of nondiscretionary, but not nearly to the extent of discretionary items. We have seen some milder weather that affects sales. And, again, we have seen other public reports come out talking about milder weather and affecting sales. So we have taken all that into account.

Again, the delay, I think, a macro perspective, I think the industry and is probably in agreement with what I am saying is that the fundamental tailwinds are strong. You know, I am not sure we do not refunds, we do not know what is gonna happen there. So we are not-- we are somewhat agnostic in our guidance to the refunds. The extent that we have went for refunds, you know, we will we will have to see how that, you know, affects us, hopefully, positively.

But we are looking at a relatively modest outlook, you know, in light of all the situation, and you know but with some optimism because of the amount of momentum we have, in particular, in our brake lines. The brake opportunity for us we think, is unfolding in a bigger in a bigger way than even we anticipated. Coming into this year. I think, Derek, you have been a big-- Derek at Canter and particularly you guys as well, but have called out the brake pad opportunity and we certainly believe from the momentum we are seeing in our brake business that the brake pad which is a massive, massive market. Could be unfolding positively for us. Very helpful.

Best of luck.

Analyst: Thank you.

David Lee: Thank you very much.

Operator: Thank you. As there are no further questions, I will now turn the call back over to Selwyn H. Joffe for closing remarks.

Selwyn H. Joffe H. Joffe: Great. In summary, again, we are bullish about our outlook. Notwithstanding the headwinds we experienced during fiscal 26. We remain laser focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand and grow market share for our nondiscretionary products, as well as for our diagnostic testing business. Our liquidity is strong, Our leverage is low. And we have the resources, capacity, and capability to further enhance shareholder value. In closing, we appreciate the contributions of all of our team members who are continuously focused on providing the highest level of service We are all committed to being the industry leader for parts and solutions that move our world today and tomorrow.

We also appreciate the continued support of our shareholders and thank everyone again for joining us for the call. We look forward to speaking with you when we post our fiscal 2027 first quarter call in August, and at the various investor conferences and meetings in the interim. Thanks once again.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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