On Monday, Motorcar Parts of America (NASDAQ:MPAA) discussed fourth-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/586609257
Summary
Motorcar Parts of America Inc. reported a strong fourth quarter with net sales increasing by 9.9% and gross profit rising by 30.9%.
The company reduced net bank debt to $80 million and used cash from operating activities of $4.5 million due to increased accounts receivable.
Strategic initiatives include expanding the brake-related business, relocating heavy-duty operations to Mexico, and exploring AI tools for working capital management.
Guidance for fiscal year 2027 projects net sales growth of 7.5% to 10.2%, with operating income expected to rise between 12.3% and 18.8%.
Management is optimistic about future growth due to increased vehicle age and vehicle numbers, with a strong focus on non-discretionary aftermarket parts.
Full Transcript
OPERATOR
Thank you for standing by and welcome to the Motorcar Parts of America Fiscal 2026, fourth quarter and year end conference call. All lines have been placed on mute to prevent any background noise. After the Speaker’s remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press star followed by the number one in your telephone keypad. If you’d like to withdraw your question again, press Star one.
Thank you. I’d now like to turn the call over to Gary Mayer, Vice President, Corporate Communications and Investor Relations. You may begin.
Gary Mayer (Vice President, Corporate Communications and Investor Relations)
Thanks everyone for joining us today for our fiscal, fourth quarter and year end conference call. Before we begin, I turn it over to Selwyn Joffe, Chairman, President, Chief Executive Officer and David Lee, our Chief Financial Officer. I’d like to remind everyone of the safe harbor statement included in today’s press release. Private securities Litigation Reform act of 1995 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 can be no assurance that future developments affecting the Company will be those anticipated by Motor Car 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 or 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 like to begin the call turn it over to Selwyn.
Selwyn Joffe (CEO)
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 2027 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 722,000 a year ago and net income for the year was $12.4 million compared with the 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 reuse 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, support about further efficiencies and increased utilization of our facilities.
We have a number of initiatives that we are exploring including utilizing AI tools to help neutralize working capital. We expect to continue to generate positive cash flow on an annual basis. Over the last three years we have generated more than 100 million of cash from operating activities 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’ve highlighted before, the Average age of U.S. light vehicles continues to rise. Most recent industry data shows that the average age has risen to 12.8 years from 12 and a half years in 2024.
In addition, the number of vehicles on the road climbed to 295.9 million vehicles from 291.1 million vehicles a year ago. We expect increased replacement opportunities for the life of vehicles, particularly with consumers holding onto their vehicle longer. In short, we’re 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 margins.
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 2026 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 in Mexico which complements our existing strategic operational and distribution footprint there. As our U S 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 JBT1 benchtop 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 non discretionary 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, whether newer or older vehicles. As I’ve previously mentioned, deferment is not really a long term option for our non discretionary products.
If your car doesn’t start or stop, you’re not driving. We believe we have meaningful opportunities for further growth and profitability as the competitive landscape continues to change. I’d now like to turn the call over to David.
David Lee (Chief Financial Officer)
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 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 someone 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 non cash expenses of 1.8% and one time items of 0.3% as detailed in Exhibit 3 of this morning’s earnings press release. Excluding these non cash and certain one time 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, 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 2026 was 65.8 million. Operating income was $76.6 million before the impact of non cash expenses of $11.6 million and the benefit of one time cash items of $791,000 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 someone 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 2026. 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. The three years ended March 31, 2026., the company generated cash from operating activities of approximately $103.8 million. As someone previously highlighted, our liquidity remains strong with total cash and availability of approximately $133.7 million as of March 31, 2026.. We remain focused on increasing operating profit and gross margins 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 non cash and one time cash expenses was 86.1 million the same period. To recap, our net bank debt was 80 million at March 31, 2026. compared with EBITDA before the impact of non cash and one time cash expenses mentioned above of 86.1 million for the twelve months ended March 31, 2026. resulting in a net bank debt to ebitda ratio of 0.93. We are also committed to further opportunities to increase share repurchases.
For the 12 month period the company repurchased 955,608 shares or $11.4 million at an average share price of $11.88. With regard to our EV emulator business which is a non core 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 non recurring items including tariff pass throughs due to the reduction of import tariffs and non recurring core revenue representing net sales of between 780 million and 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% and 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 non cash items and one time 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. If you would like to ask a question, please press Star one in your telephone keypad. If you’d like to withdraw your question, simply press Star one. Again, your first question comes from the line of Brian Nagle from Oppenheimer. Your line is open.
Andrew Chasnow
Hi, this is Andrew Chasnow. I’m on for Brian Nagel. Thanks for taking our question. Really nice order here. Thank you.
Yes, I guess just two questions. You know you referenced the competitor bankruptcy as 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 Joffe (CEO)
Yeah I think a good proportion of that is but we most of our growth is from some other good organic growth coming that’s unrelated to that. So we’re benefiting on both fronts.
Andrew Chasnow
That’s helpful. And then this is my follow up. You discussed the larger customer ordering disruption that weighed on Q3, that it clearly seems to have normalized. So is the relationship now fully back to baseline or is there still some recovery volume that we should be thinking about?
Selwyn Joffe (CEO)
Well, I think that again, you know, without getting into the specifics of the customer, I mean that revenue came back, that customer did shut down about 15% of their stores.. So our estimate is that, you know, a baseline is now 85% of previous revenues although Although the customers reported, you know, strong financial results in between our last calls. So we’re optimistic, you know, overall for all of our customers. We think. I, you know, I go back to the fundamentals and the statistics is that the car population continues to grow.
The average age of vehicles continues to go up. The car prices, new car prices are up significantly. And you know, as a result, used car sales are going up. Their prices are also going up. So, you know, we, we see the fundamentals though of people maintaining their vehicles, keeping them on the road, and we focused on non discretionary items. So, you know, we’re 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’s opportunity. That’s really helpful. Thank you.
OPERATOR
And again, if you’d like to ask a question, press star 1 in your telephone keypad. Your next question comes from a line of Derek Soderbergh from Kantor Fitzgerald. Your line is open.
Derek Soderbergh
Hey guys, thanks for taking the questions. Just a quick, just. Hey guys, just a quick clarification on gross margin for the quarter. I’m actually getting 23.7%. I was wondering if you can clarify that. Just looking at Exhibit 3, it looks like the cash and non cash impacts largely cancel each other out. It looks like you’ve got an impact that’s negative, but it shows positive on the like a 30 basis point improvement.. Just wonder if you can clarify that quick.
David Lee (Chief Financial Officer)
Sure. So if you look at Exhibit 3 of this morning’s earnings press release, a reported gross margin was 23.7%. The non cash items had a 1.8% impact. So you add that 1.8%. And also the cash items had a 0.3%. So if you add the 1.8% and the 0.3 to the 23.7, that gets you to 25.8%. Does that make sense?
Derek Soderbergh
Yeah, I’m seeing the cash impact as a negative 4 million or negative 3.976.
David Lee (Chief Financial Officer)
Right. So that’s a good point. If you look at the letter a, the negative $6.5 million had a impact of negative 0.9%. And we indicate that’s 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 cash impact was 0.3%. Unfavorable for the quarter.
That if you add to the non cash of 1.8% and add that to 23.7% gets you to 25.8%.
Derek Soderbergh
Got it. Okay. Okay. And so I just changed that click 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, you know, brake business that’s becoming very accretive to gross margin, but I know there were some, you know, 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 maybe we should expect looking into fiscal 27 for gross margin?
David Lee (Chief Financial Officer)
That’s a good question. We continue to be focused on margin accretion. So this past quarter we experienced not only cost reductions, but efficiencies. We’re very focused on efficiencies.
So all the product lines were focused on becoming higher in gross margin. So we do expect in the new fiscal year all those initiatives that we’re undertaking, including continuing with cost reduction, becoming more efficient, all those positively contributing to gross margin.
And then on the revenue side, we’ve got significant new business commitments as well as significant amount pending that we’re 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’re trying to sort of give a baseline guidance and then sort of look at the upper the year end run rate as significantly up.
Derek Soderbergh
Got it. That’s helpful. And then just one last quick one, is the inventory that some of your customers are working through that related to the first brands 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 that I should think about it?
David Lee (Chief Financial Officer)
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, you know, would give them more time at the transition for the new supplier. We’re ready to go, but our customers are reducing that inventory. They’re all firm commitments that we have and we are shipping all those customers but but smaller quantities today.
And as we get through the year, you’ll see significant ramp up in those volumes. But that relates to that liquidation, yes.
Derek Soderbergh
Awesome. We really appreciate it guys.
David Lee (Chief Financial Officer)
Thank you very much. Derek. Appreciate you. Thank you. Thank you.
OPERATOR
Your next question comes from the line of Brian Nagel from Oppenheimer, your line is open.
Brian Nagel
Hey, I thought I would just squeeze one more quick, quick follow up, if that’s all right. Yeah, and I guess really just wanted to get your thoughts on, you know, bigger picture, the macro and what, what is being contemplated within your guidance. You know, on one hand you have maybe a waning tax benefit from the, from the end consumer. You have higher gas prices. So on one hand maintaining vehicles but potentially less miles driven on the road.
How are you, what macro factors are you considering as you’re thinking about the next year ahead?
Selwyn Joffe (CEO)
Yeah, I think we, I mean, I think we, to the extent that we’re capable, I mean sort of the status quo is what we’re incorporating. I mean we, you know, we see higher fuel prices affecting miles driven, but again we’re, you know, the point I was trying to make is we’re non-discretionary. There is some deferral of non-discretionary, but not, not nearly to the extent of discretionary items. However, we have seen some milder weather that affects sales and again, you know, we’ve seen other public reports come out talking about milder weather and affecting sales.
So we’ve taken all that into account. Again, the delay, I think from a macro perspective, I think the industry is probably in agreement with. What I’m saying is that the fundamental tailwinds are strong. You know, I’m not sure, you know, we don’t know about refunds, we don’t know what’s going to happen there. So we’re not, we’re somewhat agnostic in our guidance to the refunds to the extent that we have windfall refunds. You know, we’ll, we’ll have to see how that, you know, affects us hopefully positively.
But we’re looking at a relatively modest outlook, you know, in lieu, in light of all the geopolitical situation and you know, but, but with some optimism because of the amount of momentum we have in particular in our brake lines. The break opportunity for us we think is unfolding in a bigger way than even we anticipated coming into this year. I think Derek, you’ve been a big Derek at Canta and in particular you guys as well, but have called out the brake pad opportunity, and we certainly believe from the momentum we’re seeing in our brake business that the brake pad opportunity,, which is a massive, massive market, could be unfolding positively
Brian Nagel
Very helpful. Best of luck. Thank you.
Selwyn Joffe (CEO)
Thank you very much. Thank you.
OPERATOR
As there are no further questions, I will now turn the call back over to Selwyn Joffe for closing remarks.
Selwyn Joffe (CEO)
Great. In summary, again we are bullish about our outlook. Notwithstanding the headwinds we experienced during fiscal 2026, 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 non discretionary 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 host our fiscal 2027 first quarter call in August and at the various investor conferences and meetings in the interim.
Thanks once again.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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