Motorcar Parts (MPAA) Q4 2025 Earnings Transcript

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DATE

Monday, June 9, 2025 at 1 p.m. ET

CALL PARTICIPANTS

Chairman, President, and Chief Executive Officer — Selwyn H. Joffe

Chief Financial Officer — David Lee

Vice President, Corporate Communications and Investor Relations — Gary S. Maier

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TAKEAWAYS

Net Sales: Recorded net sales of $757.4 million, a new high for fiscal 2025, representing a 5.5% increase for FY2025.

Gross Profit: Gross profit reached a record $153.8 million in fiscal 2025, rising 16.1% for FY2025 (GAAP).

Gross Margin: Gross margin improved to 20.3% in FY2025, an increase of 1.8 percentage points over fiscal 2024.

Cash Flow from Operations: Generated $45.5 million in cash from operating activities in FY2025.

Net Bank Debt: Reduced by $32.6 million in fiscal 2025, ending at $81.4 million.

Share Repurchases: Repurchased 542,134 shares for $4.8 million at an average price of $8.91 per share in FY2025.

EBITDA (Full Year): EBITDA totaled $50.3 million in FY2025, including $33.4 million in noncash expenses and $9.2 million in one-time cash expenses (does not sum to total due to additional adjustments).

Tariff Impact: $5.9 million in one-time cash expenses for tariff costs on products sold before price increases took effect in FY2025.

China Supply Chain Exposure: Less than 25% of products and components sourced from China.

USMCA Compliance: Mexican and Canadian products confirmed as tariff-free under USMCA.

Net Sales Guidance: Net sales for fiscal 2026 (FY2026) are projected at $780 million to $800 million, representing a projected year-over-year growth of 3%-5.6%.

Operating Income Guidance: Fiscal 2026 expected between $86 million and $91 million, an increase of 4.3%-10.4% over the prior year.

Price Increases: Nearly all intended customer price increases have been implemented, with management stating, "We have accomplished almost 100% of our intended price increases."

Margin Expansion Drivers: Management identified cost-per-unit reductions, higher sales per unit, and increased capacity absorption as catalysts.

SUMMARY

Motorcar Parts of America, Inc. (NASDAQ:MPAA) provided guidance for higher net sales and operating income in FY2026, underpinned by implemented price increases and cost reduction initiatives. Management expects the tariff impacts to diminish as measures take full effect. The company also reported substantial operating cash flow and share repurchases in fiscal 2025, signaling a focus on shareholder returns. Guidance excludes the effect of newly enacted tariffs due to ongoing uncertainty, emphasizing management’s current inability to precisely quantify the future impact.

Selwyn H. Joffe stated, "We are confident that all the current tariffs imposed as of today will be fully offset, notwithstanding some short-term timing differences."

David Lee highlighted, "Gross margin for FY2025 was impacted by $13.5 million, or 1.8%, in noncash expenses and $5.9 million, or 0.8%, in one-time cash expenses, primarily related to certain tariff costs paid for products sold before price increases took effect,"

Management indicated that new operating efficiency efforts and an expanded global manufacturing footprint remain central to improving future results.

The company’s reduction in Chinese supply chain dependence and USMCA-compliant sourcing position MPAA for potential market share gains amid ongoing tariff uncertainty.

INDUSTRY GLOSSARY

USMCA: United States-Mexico-Canada Agreement, a trade accord that exempts certain North American–sourced products from tariffs.

Core and finished good premium amortization: Noncash accounting expenses specific to parts business, tied to the valuation of recoverable and reusable components and inventory adjustments under GAAP.

Mark-to-market foreign exchange gains/losses: Noncash accounting adjustments reflecting periodic revaluation of assets and liabilities due to currency rate fluctuations.

Full Conference Call Transcript

Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America, Inc. Fiscal 2025 fourth quarter and year-end conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To withdraw your question, press star one again. I would now like to turn the conference over to Gary S. Maier, Vice President, Corporate Communications and Investor Relations at Motorcar Parts of America. Please go ahead.

Gary S. Maier: Thank you, Regina. And thanks everyone for joining us for our call today. Before we begin and I turn the call over to Selwyn H. Joffe, Chairman, President, and Chief Executive Officer, and David Lee, the company's Chief Financial Officer, I'd like to remind everyone of the Safe Harbor statement included in today's press release. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor for certain forward-looking statements, including statements made during today's conference call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America.

Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, some of which are beyond the control of the company, and are subject to change based on various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For a more detailed discussion of some of the risks and uncertainties of the business, I refer you to the various SEC filings. With that said, I'd like to turn the call over to Selwyn Joffe.

Selwyn H. Joffe: Great. Thank you, Gary. I appreciate everyone joining us today. Before we go over our strong results, and by the way, we are off to a strong start for this quarter, I'd like to first address tariffs. We have substantially mitigated the current tariffs with customer price increases and supply chain initiatives. We are confident that all the current tariffs imposed as of today will be fully offset, notwithstanding some short-term timing differences. We believe these tariffs will provide us strategic competitive advantages going forward with strong market share growth opportunities. We are certainly excited by our accomplishments for fiscal 2025.

With net sales increasing 5.5% to a record $757 million and gross profit increasing 16.1% to a record $154 million along with solid cash flow generation from operating activities of $45.5 million and net bank debt reduction of $32.6 million, all of which David will review shortly. In addition, we repurchased 542,134 shares for $4.8 million at an average of $8.91 in fiscal 2025, and we anticipate further opportunities to enhance shareholder value through strong cash generation. Our team focus continues to be on continuous improvements, and we are excited by the opportunities.

Notwithstanding the current challenges with regard to tariffs, the nondiscretionary nature of our product portfolio, coupled with a significant North American manufacturing footprint, will continue to drive our long-term success. I should note that we have been focused on executing strategies designed to enhance our long before the current events, including a focus on being less dependent on Chinese supply chain, whether components or parts, and providing industry-leading product fill rates. As we noted in today's press release, Chinese supplies today provide less than 25% of our products and components. We continue to work to mitigate the impact of tariffs. I might add that our Mexican and Canadian products are USMCA compliant and currently free from tariffs.

We look forward to further clarity about tariffs as we continue to focus on serving our customers and achieving our financial performance targets.

As I mentioned during our call last quarter, our hard parts business, led by rotating electrical 50-plus-year flagship category, continues to generate solid performance. The nondiscretionary nature of our products, alternators and starters for example, cannot be deferred. If nondiscretionary products are broken, your car cannot be driven, which is particularly relevant in the current environment. According to industry reports, the average age of U.S. light vehicles increased by 2 months for the second consecutive year. Research indicates that vehicle registrations in 2024 surpassed 16 million for the first time since 2019, exceeding scrappage rates. In addition, the number of vehicles on the road planned to 289 million, remaining a favorable tailwind.

We expect increased replacement opportunities for the life of vehicles, particularly with consumers holding on to their cars for longer.

We are encouraged by the continued success of our second largest product category: brake-related applications, supported by our quality, customer service, and capacity to meet demand. Our team is doing an exceptional job to further enhance market share, and we look forward to continued sales growth for this important nondiscretionary product category. As I previously mentioned, there are various factors relating to our financial performance that are noncash and beyond our control, particularly the current sharply unfavorable noncash mark-to-market foreign exchange losses from Mexico lease liabilities and forward contracts for the year. A strengthening dollar versus the peso results in large noncash mark-to-market expenses, which we internally eliminate when evaluating our underlying results.

We are continuing to look at opportunities to minimize these noncash expenses, such as gains or losses related to foreign exchange, including funding our Mexican operations with pesos from our sales in Mexico. As our sales in Mexico continue to grow, we've reduced our purchases of foreign peso contracts. We expect over time we will eliminate the need to purchase these contracts. We remain focused on sales growth, profitability, and neutralizing working capital. As I noted earlier, we expect our sales and profitability will continue to grow organically.

We continue to leverage our strengths, particularly during these challenging times, offering our customers great products manufactured at state-of-the-art facilities, industry-leading SKU coverage, and order fill rates, supported by value-added merchandising and marketing support. Our quality-built brand is gaining market share within the professional installer market. This increasingly recognized brand includes brake-related products such as calipers, pads, and rotors. As volume increases for our hard parts business, we expect enhanced operating efficiency and margin improvement.

With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy-duty aftermarket segment. Our growth opportunities continue to gain momentum across multiple platforms such as agriculture, class A trucks, refrigeration, construction, material handling and transit/motor coach. Our Dixie brand is also evolving as an important supplier to the heavy-duty rotate electric market. Our hard part sales in Mexico continue to gain momentum as we experience increased demand for our aftermarket products. The rate of growth in this market is exciting, and we are well-positioned to utilize our footprint to meet the growing demand.

We are focused on increasing share in this region and continue to benefit in gross sales by our relationships with U.S.-based retailers and warehouse distributors, both are gaining a presence in this emerging market, as our Mexican distributor.

With regard to our diagnostic business, we continue to experience great success with our JBT-One Benstop Tester, and we remain focused on expansion to meet our customer needs. Additional service-related revenues are expected as more testers are deployed, which include repairs, software, and database updates. These contributions will increase as the installed base matures. We also expect more opportunities outside North America as the business evolves.

Favorable long-term industry dynamics continue to bode well for the company, and we are extremely well-positioned for sustainable top and bottom-line growth. As I mentioned, the outlook is bright for nondiscretionary aftermarket parts for the internal combustion engine market. We are focused on leveraging our ability to offer a broad range of applications for all makes and models, whether newer or older vehicles. Tariffs continue to cause uncertainty, but despite these challenges, we expect rational prices for our products from our customers, particularly in the face of these tariffs, and we remain committed to offering quality nondiscretionary products and being a reliable partner. This, combined with exceptional value-added services, will continue to distinguish our organization.

Before I turn the call over to David to review our results in greater detail, let me summarize. From a sales perspective, we expect continued organic growth for our business supported by the favorable tailwinds previously mentioned. Our commercial heavy-duty market continues to grow. Our brake-related business is gaining further traction, particularly brake calipers. In addition, our sales in the Mexican market are growing nicely, and we expect this momentum will continue and expand throughout the region. Finally, our Diagnostic business is growing nicely and we look forward to continued success. From a gross margin perspective, increasing market share gains, particularly for brake-related products, should enhance our gross margin.

With continued operating efficiencies and supply chain cost-reduction opportunities, we expect further margin growth. Finally, and most importantly, sales growth, gross margin improvement, and an ongoing focus on neutralizing working capital support our ability to further reduce debt, repurchase shares, and take advantage of other opportunities to enhance shareholder value.

David Lee: Thank you, Selwyn, and good morning, everyone. I encourage everyone to read the earnings press release issued this morning as well as the 10-Ks that we filed later today. Let me reiterate key financial performance metrics for the full fiscal 2025 that we highlighted in this morning's news release, as Selwyn mentioned earlier. Net sales increased 5.5% to a record $757.4 million. Gross profit increased 16.1% to a record $153.8 million. We generated cash from operating activities of $45.5 million and reduced net bank debt by $32.6 million to $81.4 million. We repurchased 542,134 shares for $4.8 million. Net sales for the fiscal 2025 fourth quarter increased 1.9% to $193.1 million from $189.5 million in the prior year.

Gross profit for the fiscal 2025 fourth quarter increased 10.6% to a fourth-quarter record of $38.5 million from $34.8 million a year earlier. This was impacted by $4.6 million or 2.4% for certain tariff costs paid for products sold before price increases were effective, as highlighted in our earnings press release this morning. Gross profit for the quarter was also impacted by noncash expenses that include core and finished good premium amortization and revaluation of core and customer shells, which are unique to certain of our products and required by GAAP. The total for these noncash expenses in the quarter was approximately $3.2 million or a 1.7% impact to gross margin.

Gross margin for the fiscal 2025 fourth quarter was 19.9%, compared with 18.4% a year earlier. Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we're also focused on other initiatives to enhance gross margins. Operating expenses were $22.2 million compared with $22.6 million last year, which benefited from a $3.1 million noncash mark-to-market foreign exchange gain compared with a $1.2 million noncash mark-to-market foreign exchange gain in the prior year. Interest expense for the fiscal fourth quarter decreased by $2.1 million to $12.5 million from $14.6 million a year ago, impacted by lower average outstanding balances under the company's credit facility and lower interest rates.

For the fourth quarter, income tax expense was $1.9 million compared with a $1.1 million income tax benefit for the prior year. The effective tax rate for the fiscal fourth quarter was due in part to the inability to recognize the benefit of losses at specific jurisdictions. However, we expect these losses will be utilized against future profits which will benefit future tax rates. Obviously, there are various factors impacting the tax effects. Net loss for the fiscal 2025 fourth quarter was $722,000 or $0.04 per share, reflecting the impact of $4.6 million or $0.24 per share pretax for tariff costs that I explained earlier in my gross profit discussion.

Net loss was also impacted by certain noncash items of $2.6 million or $0.14 per share, as detailed at Exhibit One. Net income for the prior year was $1.3 million, including the impact of noncash expenses, as detailed in Exhibit One. As previously explained, higher sales volumes and operating efficiency will further improve results. EBITDA for the fiscal fourth quarter was $16.3 million, reflecting the $3.5 million impact of noncash expenses and $4.8 million of one-time cash expenses detailed in Exhibit Five of this earnings press release. EBITDA before the impact of noncash expenses and one-time cash expenses mentioned above was $24.6 million for the fourth quarter.

Now let me discuss the twelve-month results. Net sales for fiscal 2025 increased 5.5% to a record $757.4 million from $717.7 million a year ago. Gross profit for fiscal 2025 increased 16.1% to a record $153.8 million from $132.6 million a year earlier. Gross margin for fiscal 2025 increased by 1.8 percentage points to 20.3% compared with 18.5% a year earlier. Gross margin for fiscal 2025 was impacted by $13.5 million or 1.8% of noncash expenses and $5.9 million or 0.8% of one-time cash expenses, primarily for certain tariff costs paid for products sold before price increases were effective, as detailed in Exhibit Four in this morning's earnings press release.

Net loss for fiscal 2025 was $19.5 million or $0.99 per share, primarily due to the impact of noncash expenses of $25 million or $1.27 per share, and one-time cash expenses of $6.9 million or $0.35 per share as detailed in Exhibit Two in this morning's earnings press release. Net loss for the prior year period was $49.2 million or $2.51 per share, including the impact of noncash expenses of $50.3 million or $2.56 per share, and cash expenses of $7.0 million or $0.36 per share as detailed in Exhibit Two. EBITDA for fiscal 2025 was $50.3 million.

EBITDA was impacted by $33.4 million of noncash expenses as well as $9.2 million in one-time cash expenses including $4.6 million for certain tariff costs paid for products before price increases were effective, and $4.6 million for transition and severance costs, which related to the closure of our Torrance warehouse detailed in Exhibit Five of this morning's earnings press release. EBITDA before the impact of noncash and cash expenses mentioned above was $92.8 million for the current period.

Now let me move on to cash flow and key corporate items. The company generated cash of approximately $45.5 million in operating activities during fiscal 2025. We continue to focus on increasing operating profit and gross margin, and generating positive cash flow, supported by organic growth from customer demand and operating efficiencies from our global footprint expansion. In addition to our goal of generating increased operating profits, we expect further opportunities to neutralize working capital, supported by customer product demand planning, enhanced inventory management, and extending our vendor payment terms. Net bank debt decreased by $32.6 million during fiscal 2025 to $81.4 million from $114 million. Our liquidity remains very strong with total cash and availability of approximately $144.6 million.

I should mention that for every 1% reduction in interest rates, interest expense for accounts receivable discount programs offered by customers is reduced by approximately $6 million.

Now let me address our outlook. As stated in our news release this morning, we expect net sales for the fiscal year ending March 31, 2026, to be between $780 million and $800 million, representing between 3% and 5.6% year-over-year growth. Operating income is expected to be between $86 million and $91 million, representing between 4.3% and 10.4% year-over-year growth. We estimate depreciation and amortization will be approximately $11 million. These estimates do not include certain noncash items and one-time expenses and exclude the impact of tariffs recently enacted.

Due to uncertainty and continuing changes, further explanation on the reconciliation items that impact results and non-GAAP financial measures, please refer to Exhibits One through Five in this morning's earnings press release. I would now like to open the line for questions.

Operator: Our first question will come from the line of Derek John Soderberg with Cantor Fitzgerald. Please go ahead.

Derek John Soderberg: Hey, guys. Thanks for taking the questions. So, Selwyn, you mentioned tariffs increasing strategic competitive advantage. Can you expand on how you see tariffs potentially helping out on market share? Are you already having those conversations with customers, and do you think specifically that positions you better to gain share in the global tariff environment? Then I've got a follow-up.

Selwyn H. Joffe: Yeah, Derek, great to hear from you. That's a question we will delay answering for a period of time. But, we have adjusted our footprint way in advance of tariffs to be less dependent on China. We continue to focus on that with more opportunity to come. As I mentioned, less than 25% of our imports come from China, so we're ahead of the game. The important thing to understand is, we ship direct from our factories. When it comes to tariffs and cash flow, we only pay tariffs when we sell the product. Once price increases and initiatives kick in, that's cash neutral.

The majority of our competitors house their inventory in the United States and need to replenish inventory with tariff goods, so their cash requirement will be far greater than ours.

Derek John Soderberg: Got it. That makes sense. And then as my follow-up, David, just wondering about the customer price increases. Wondering how that's going to impact gross margin? You have been expanding margin pretty nicely here. Fiscal 25 adjusted gross margin was around 22.5%. With the addition of tariffs and those price increases, do you think you can grow off that for fiscal 26? Thanks.

David Lee: That's a good question. So if we just look at tariffs, increasing the numerator and denominator will slightly negatively impact the gross margin. However, other initiatives to expand the gross margin and increase that margin percentage should offset that impact.

Derek John Soderberg: Got it. That's helpful. Thanks, guys.

Selwyn H. Joffe: Thanks, Derek. Appreciate it.

Operator: Our next question will come from the line of Carolina Jolly with Gabelli. Please go ahead.

Carolina Jolly: Good morning, and thank you for taking my question. I was hoping for some clarification on the tariffs. I guess, is what we saw in the quarter a good representation of what we should expect, or are the tariffs moving too much to really project a certain impact at this point?

Selwyn H. Joffe: I think the timing impact is unpredictable. We'll see a bit more of it, and it will disappear soon as those price increases and initiatives kick in. So, we can't give exact guidance on where that's going to go yet.

Carolina Jolly: Great. And then another clarification: the price increases you talked about, are those the price increases already enacted or expected going forward?

Selwyn H. Joffe: We have accomplished almost 100% of our intended price increases.

Carolina Jolly: Perfect. Thanks. And then last question. Just looking at the guidance. It looks like you're expecting some margin expansion next in the fiscal year. Can you elaborate on some of the catalysts behind that?

David Lee: All the initiatives focused on lowering costs per unit and increasing sales per unit. We are constantly focused on reducing costs.

Selwyn H. Joffe: Capacity absorption with more volume?

David Lee: Yes, precisely.

Selwyn H. Joffe: Our momentum right now is quite strong. Naturally, organic absorption is a factor, but we've got various operating initiatives as well that continue.

Carolina Jolly: Great. Thank you.

Operator: And that will conclude our question and answer session. I will turn the call back over to Selwyn Joffe for any closing remarks.

Selwyn H. Joffe: Thank you so much. In summary, as you can tell, we remain bullish about our outlook. We remain laser-focused on further efficiencies as discussed and fully benefiting from a not easily duplicated global platform to meet demand for our nondiscretionary products as well as for our diagnostic testing capabilities. We continue to leverage our expertise in solid customer and supplier partnerships, including our supply chain vendor finance program, which benefits our suppliers. Our liquidity is very strong, and we have the resources, capacity, and capability to further enhance shareholder value.

In closing, I must recognize the contributions of all our team members who are continuously focused on providing the highest level of service. We are 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 host our fiscal 2026 first quarter call in August and at various investor conferences, including future meetings.

Gary S. Maier: Wednesday.

Selwyn H. Joffe: Wednesday. Sorry. Not tomorrow. I am a day ahead of myself.

Operator: Ladies and gentlemen, that will conclude our call. Thank you all for joining, and you may now disconnect.

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