Q4 2025 Motorcar Parts of America Inc Earnings Call
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 'twenty 25 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.
Speaker Change: Session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again I would now like to turn the conference over to you Gary Maier, Vice President Corporate Communications and Investor Relations at Motorcar parts of America. Please go ahead.
Speaker Change: Thank you. Thank you Regina and thanks, everyone for joining us for our call today.
Speaker Change: Before we begin and I turn the call over to Selwyn, Jonathan 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.
Speaker Change: The private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward looking statements.
Speaker Change: Including statements made during today's conference call such forward looking statements are based on the company's current expectations and beliefs and chip concerning future developments and their potential effects on the company.
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 there.
Risk 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.
Speaker Change: 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, great. Thank you Gary I appreciate everyone joining us today.
Selwyn Joffe: Before we go over our strong results and by the way we were off to a strong start for this quarter I'd like to first address tariffs.
Selwyn Joffe: We have substantially mitigated the current tariffs with customer price increases and supply chain initiatives. We are confident that all of the current tariffs imposed as of today will be fully offset notwithstanding some short term timing differences.
Selwyn Joffe: We believe these terrorists, who will provide a strategic competitive advantages going forward with strong market share growth opportunities.
Selwyn Joffe: We are certainly excited about our accomplishments for fiscal 2025 with net sales increasing five 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.
Selwyn Joffe: Activities of $45 $5 million and net debt reduction of $32 $6 million.
David: All of which David will review shortly.
Selwyn Joffe: In addition, we repurchased 542134 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.
Selwyn Joffe: Our team focus continues to be focused on continuous improvements and we are excited by the opportunities notwithstanding the current challenges with regard to tax.
Selwyn Joffe: The non discretionary 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 competitive edge long before the current events, including a focus on being less dependent on Chinese supply chain.
Selwyn Joffe: Whether components or parts and providing industry, leading product fill rates.
Selwyn Joffe: As we noted in today's press release Chinese suppliers today provide less than 25% of our products and components and we continue to work to mitigate the impact of tariffs.
Selwyn Joffe: I might add that our Mexican and Canadian products say U S MCA compliance and currently free from tariffs.
Selwyn Joffe: We look forward to further clarify about tariffs as we continue to focus on serving our customers and us.
Selwyn Joffe: Keeping our financial performance targets.
Selwyn Joffe: As I.
Selwyn Joffe: During our call last quarter, our hard parts business led by rotating electrical 50, plus your flagship category continues to generate solid performance.
Selwyn Joffe: Non discretionary nature of our products Alternators and startups for example cannot be deferred.
Selwyn Joffe: If non discretionary products are broken youll call cannot be driven which is particularly relevant in the current environment.
Selwyn Joffe: According to industry reports the average age of U S light vehicles has risen to 12 eight years and.
Selwyn Joffe: An increase of two months for the second consecutive year.
Selwyn Joffe: Our research indicates that vehicle registrations in 2024 surpassed 16 million for the first time since 2019 exceeding scrappage rates.
Selwyn Joffe: In addition, the number of vehicles on the road climbed to $289 million remaining a favorable tailwind.
Selwyn Joffe: We expect increased replacement opportunities for the license vehicles, particularly with consumers holding onto their cars for long enough.
Selwyn Joffe: We are encouraged by the continued success of our second largest product category brake related applications.
Selwyn Joffe: Supported by our quality customer service and capacity to meet demand.
Selwyn Joffe: Our team is doing an exceptional job to further enhance market share and we look forward to continued sales growth for this important non discretionary product category.
Selwyn Joffe: As I've previously mentioned and as referenced in the exhibits to our earnings release.
Selwyn Joffe: 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 laws from Mexico lease liabilities and forward contracts for the year.
Selwyn Joffe: A strengthening dollar versus the peso results in long large noncash mark to market expenses, which we internally eliminate when evaluating our underlying results.
Selwyn Joffe: 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 vessels from our sales in Mexico.
Selwyn Joffe: As our sales in Mexico continue to grow we have reduced our purchases afford peso contracts. We expect over time, we will eliminate the need to purchase these contracts.
Selwyn Joffe: We remain focused on sales growth profitability and neutralizing working capital.
Selwyn Joffe: I noted earlier, we expect our sales and profitability, we will continue to grow organically.
Selwyn Joffe: We continue to leverage our strengths, particularly these during these challenging times offering our customers great products manufactured at the state of the art facilities industry, leading SKU coverage and order fill rates supported by value added merchandising and marketing support.
Selwyn Joffe: Our quality built brand is gaining market share within the professional installer market. This.
Selwyn Joffe: This is increasingly recognized brand includes brake related products, such as calipers pads in rodents.
Selwyn Joffe: As volume increases for our hard parts business, we expect enhanced operating efficiency and margin improvement.
Selwyn Joffe: With regard to our heavy duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supply and Alternators and starters to our channel partners, who are leaders in the heavy duty aftermarket segment.
Selwyn Joffe: Our growth opportunities continue to gain momentum across multiple platforms, such as agriculture class eight trucks refrigeration construction.
Selwyn Joffe: Zero handling and transit slash motor coach.
Selwyn Joffe: Our Dixie brands, let's say evolving as an important supplier to the heavy duty rotating electrical market.
Selwyn Joffe: Our hard parts sales in Mexico continue to gain momentum as we experienced increased demand for our aftermarket products.
Selwyn Joffe: The rate of growth in this market is exciting and we are well positioned to utilize our footprint to meet the growing demand.
Selwyn Joffe: 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.
Selwyn Joffe: Both are getting a presence in this emerging market.
Selwyn Joffe: As our Mexican distributor.
Selwyn Joffe: Yeah.
Selwyn Joffe: Yeah.
Selwyn Joffe: With regard to our diagnostic business, we continue to experience great success with our JBT, one bench top tester and we remain focused on expansion to meet our customer needs.
Selwyn Joffe: Additional service related revenues expect as there's more testers are deployed which includes repairs software and database updates. These contributions will increase as the installed base matures.
Selwyn Joffe: We also expect more opportunities outside North America as the business evolves.
Selwyn Joffe: In short 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 non discretionary aftermarket parts for the internal combustion engine market and we are focused on leveraging our ability.
Selwyn Joffe: <unk> to offer a broad range of applications for all makes them more models with a newer or older vehicles.
Selwyn Joffe: Tariffs continue to cause uncertainty. Despite this challenge, we expect rational prices for our products from our customers, particularly in the face of these tariffs and we remain committed to offering quality non discretionary products and being a reliable partner.
Selwyn Joffe: This combined with exceptional value added services, we will continue to distinguish our organization.
Speaker Change: Before I turn the call over to David to review our results in greater detail, Let me summarize.
Selwyn Joffe: From a sales perspective, we expect continued organic growth for our business supported by the favorable tailwind, which I previously mentioned.
Selwyn Joffe: Our commercial heavy duty market continues to grow.
Selwyn Joffe: Greg break related business is gaining further traction, particularly brake caliper brake calipers and.
Selwyn Joffe: In addition, our sales in the Mexican market are growing nicely and we expect this momentum will continue and expand throughout the region.
Selwyn Joffe: And finally, our diagnostic business is growing nicely and we look forward to continued success.
Selwyn Joffe: From a gross margin perspective, increasing market share gains, particularly for brake related products should enhance our gross margin targets with continued operating efficiencies and supply chain cost reduction opportunities.
Selwyn Joffe: We expect further margin growth.
Selwyn Joffe: Finally, and most importantly sales growth gross margin improvement and an ongoing focus on mutualization working capital support our ability to further reduce debt repurchase shares and take advantage of other opportunities to enhance shareholder value.
Selwyn Joffe: Thank you Sylvia and good morning, everyone I encourage everyone to read the earnings press release issued this morning as well as the 10-K that we filed later today.
Selwyn Joffe: Let me reiterate key financial performance metrics for the full fiscal 2025, we highlighted in this mornings news release and someone mentioned earlier.
Selwyn Joffe: Net sales increased five 5% to a record $737 4 million.
Selwyn Joffe: Most profit increased 16, 1% to a record $153 8 million Gen.
Selwyn Joffe: <unk> generated cash from operating activities of $45 5 million and reduced net debt by $32 6 million to $81 4 million.
Selwyn Joffe: We repurchased 543134 shares.
Selwyn Joffe: $4 8 million.
Selwyn Joffe: Net sales for the fiscal 'twenty five fourth quarter increased one 9% to $193 1 million from $189 5 million in the prior year.
Selwyn Joffe: Gross profit for the fiscal 'twenty five fourth quarter increased 10, 6% to a fourth quarter record $38 5 million from $34 8 million a year earlier in.
Selwyn Joffe: Impacted by $4 6 million or two 4% for certain tariff cost.
Selwyn Joffe: For products sold before price increases waste active.
Selwyn Joffe: As highlighted in our earnings press release this morning.
Selwyn Joffe: <unk> mentioned that gross profit for the quarter was also impacted by noncash expenses.
Selwyn Joffe: The noncash expenses reflect core and finished good premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP.
Selwyn Joffe: The total for these noncash expenses in the quarter was approximately $3 2 million or a <unk>.
Selwyn Joffe: One 7% impact to gross margin.
Selwyn Joffe: Gross margin for the fiscal 'twenty five fourth quarter.
Selwyn Joffe: Was 19, 9% compared with 18, 4% a year earlier.
Selwyn Joffe: Aside from higher sales volume, particularly from starting up our newer product offerings, which supports increased absorption of costs. We're also focused on other initiatives to enhance gross margins.
Selwyn Joffe: 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.
Selwyn Joffe: Compared with a $1 2 million noncash mark to market foreign exchange gain in the prior year.
Selwyn Joffe: Interest expense for the fiscal fourth quarter decreased by $2 1 million to $12 5 million, a $14 6 million a year ago impacted by lower average outstanding balances under the Companys credit facility and the <unk>.
Selwyn Joffe: Our interest rates.
Selwyn Joffe: For the fourth quarter income tax expense was $1 9 million compared with a $1 1 million income tax benefit for the prior year.
Selwyn Joffe: 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 effect.
Selwyn Joffe: Net loss for the fiscal year 'twenty five fourth quarter was 722000 or <unk> <unk> per share, reflecting the impact of $4 6 million or <unk> 24 per share pretax was tariff costs explained earlier in my gross profit discussion.
Selwyn Joffe: Net loss was also impacted by certain noncash items of $2 6 million or <unk> 14 per share as detailed in exhibit one.
Selwyn Joffe: Net income for the prior year was $1 3 million, including the impact of noncash expenses and cash expenses as detailed in exhibit one.
Selwyn Joffe: As Peter explained higher sales volumes and operating efficiencies will further improve results.
Selwyn Joffe: EBITDA for the fiscal fourth quarter was $16 3 million, reflecting the $3 5 million impact of noncash expenses.
Selwyn Joffe: And $4 8 million of one time cash expenses <unk>.
Selwyn Joffe: Exhibit five at this morning's earnings press release.
Selwyn Joffe: EBITDA before the impact of noncash expenses and one time cash expenses mentioned above was $24 6 million for the fourth quarter.
Selwyn Joffe: Now, let me discuss the 12 month results let's.
Selwyn Joffe: Net sales for fiscal 'twenty, five increase of five 5% to a record $757 4 million from $717 7 million a year ago.
Selwyn Joffe: Gross profit for fiscal 'twenty, five increased 16, 1% to a record $153 8 million from $132 6 million a year earlier.
Selwyn Joffe: Gross margin for fiscal 'twenty, five increased by one eight percentage points to 23%.
Selwyn Joffe: With 18, 5% a year earlier.
Selwyn Joffe: Gross margin for fiscal 'twenty, five was impacted by $13 5 million or one 8% of noncash expenses.
Selwyn Joffe: And $5 9 million or 8% of onetime cash expenses, primarily for certain tariff cost paid for products sold before price increases were effective as detailed in exhibit four in this morning's earnings press release.
Selwyn Joffe: Net loss for fiscal 'twenty, five was $19 5 million or 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.
Selwyn Joffe: <unk> 35 per share as detailed in exhibit two in this morning's earnings press release.
Selwyn Joffe: 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 <unk> 7 million or 36 per share as detailed in exhibit two.
Selwyn Joffe: EBITDA for fiscal 'twenty, five was $50 3 million EBITDA was impacted by $33 4 million of noncash expenses.
Selwyn Joffe: That's $9 2 million in one time cash expenses.
Selwyn Joffe: Including $4 6 million for certain tariff cost paid for products before price increases were affected.
Selwyn Joffe: And $4 6 million for transition and severance costs related to the closure of our <unk> warehouse detailed in exhibit five at this morning's earnings press release.
Selwyn Joffe: EBITDA before the impact of noncash and cash expenses mentioned above was $92 8 million for the current period.
Selwyn Joffe: Now, let me move on to cash flow and key corporate items.
Selwyn Joffe: The company generated cash of approximately $45 5 million in operating activities during fiscal 'twenty five.
Selwyn Joffe: We continue to focus on increasing operating profit and gross margin.
Selwyn Joffe: And generating positive cash flow.
Selwyn Joffe: Courted by organic growth from customer demand and operating efficiencies from our global footprint expansion.
Selwyn Joffe: In addition to our goal of generating increased operating profits, we expect further opportunities to neutralize working capital.
Selwyn Joffe: Supported by customer product demand planning enhanced inventory management, extending our vendor payment terms.
Selwyn Joffe: Net bank debt decreased by $32 6 million during fiscal 'twenty five to $81 1 million from $114 million.
Selwyn Joffe: Our liquidity remains very strong with total cash and availability of approximately $144 6 million I should mentioned that for every one point reduction in interest rates.
Selwyn Joffe: Interest expense for accounts receivable discount programs offered by customers is reduced by approximately $6 million.
Selwyn Joffe: Now, let me address our outlook.
Selwyn Joffe: 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 five 6% year over year growth.
Selwyn Joffe: Operating income is expected to be between 86 million and $91 million, representing between four 3% and 10, 4% year over year growth.
Selwyn Joffe: We estimate depreciation and amortization will be approximately $11 million.
Selwyn Joffe: These estimates do not include certain noncash items, and one time expenses and exclude the impact of tariffs recently enacted Judy uncertainty and continuing changes.
Selwyn Joffe: For further explanation on our reconciliation of items that impacted results in non-GAAP financial measures. Please refer to exhibits one through five in this morning's earnings press release.
Selwyn Joffe: I would now like to open the line for questions.
Speaker Change: We will now begin our question and answer session, if you'd like to ask a question simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Derek Soderberg with Cantor Fitzgerald. Please go ahead.
Derek Soderberg: Yeah, Hey, guys. Thanks for taking the questions. So Selwyn you mentioned tariffs increasing strategic competitive advantage can you just expand on how you see tariffs potentially helping out on market share are you already having those conversations with customers and what do you think specifically positions you guys better to to gain.
Derek Soderberg: Sure in the certain global tariff environment, and then I'm going to follow up.
Speaker Change: I think Derek I mean, great great to hear from you on I mean, Thats just a question that we're going to we're going to delay answering for for a period of time.
Speaker Change: But we we have adjusted our footprints way in advance of the tariffs to be less dependent on China.
Speaker Change: And we continue to we continue to focus on that with lots more opportunity to come I think I mentioned to you less than 25% of our imports of our product comes from imported from China.
Speaker Change: So just just inherently where we're ahead of the game I think the other thing that's really important to understand as we ship direct from our factories and so when it comes to tariffs in cash flow from tariffs, we only pay tariffs when we sell the product and.
Speaker Change: And obviously once the price increases.
Speaker Change: These initiatives kick in.
Speaker Change: That's cash neutral.
Speaker Change: I believe that the majority of our competitors Hauser inventory in the United States and I'm going to need to.
Speaker Change: To replenish inventory with with tariffs good so the cash requirement will be far far greater than ours.
Derek Soderberg: Got it got it that makes sense and then as my follow up David.
Speaker Change: Just wondering around the customer price increases I'm wondering how that's going to impact gross margin you guys have been expanding margin pretty nicely here I think fiscal 'twenty five adjusted gross margin was around 22 and a half.
Derek Soderberg: With the addition of tariffs and those price increases do you think you can grow off that for fiscal 'twenty six.
Derek Soderberg: That's a good question. So if we just look at tariffs if you increase.
Derek Soderberg: The numerator and denominator.
Derek Soderberg: Our gross margin will be slightly negatively impacted however, other initiatives to expand gross margin.
Derek Soderberg: <unk> increased our margin percentage should offset that impact.
Derek Soderberg: Yeah.
Speaker Change: Got it that's helpful. Thanks, guys.
Selwyn Joffe: Okay. Thanks, Sir.
Speaker Change: And again for any questions Press star followed by the number one on your telephone keypad. Our next question will come from the line of Carolina Jolly with Gabelli. Please go ahead.
Carolina Jolly: Good morning, Thank you for taking my question.
Selwyn Joffe: Hi, Carolyn.
Selwyn Joffe: So I think I'm.
Selwyn Joffe: I was hoping for some clarification on the tariffs.
Selwyn Joffe: I guess, what we saw in the quarter a good representation of what we should be expecting or are the tariff moving around so much that it's hard to really hum.
Selwyn Joffe: I had a project.
Selwyn Joffe: Sure.
Selwyn Joffe: Sure.
Selwyn Joffe: <unk> impact at this point.
Selwyn Joffe: I think the timing impact is unpredictable.
Selwyn Joffe: We will see a little more of that and certainly.
Selwyn Joffe: It will disappear soon.
Selwyn Joffe: Soon so as these as these price increases and initiatives kick in.
Selwyn Joffe: It's a little uncertain right now as to the exact timing and what happens with tariffs. So we can't give you exact guidance on where that's going to go yet.
Speaker Change: And then also I had another clarification that the price increases that you talked about are those.
Speaker Change: Price increases that you've already enacted or expected going for it.
Speaker Change: We have accomplished almost almost 100% of our price increases have been accepted.
Speaker Change: Thanks, and then last question just looking at the guidance I do believe it looks like Youre expecting some margin expansion.
Speaker Change: Spansion next fiscal year.
Speaker Change: Can you just elaborate on some of that.
Speaker Change: The catalyst behind that.
Speaker Change: So all the initiatives that we're focused on lowering cost per unit and increasing sales per unit. So we're constantly focused on reducing our cost and capacity absorption and apps with more volume yes.
Selwyn Joffe: So our momentum right now is quite strong so.
Selwyn Joffe: I mean, the natural organic one is overhead absorption, but we've got a number of operating initiatives as well.
Selwyn Joffe: Great. Thank you.
Selwyn Joffe: And that will conclude our question and answer session I will turn the call back over to Selwyn choppy for any closing remarks.
Selwyn Joffe: Thank you so much.
Selwyn Joffe: In summary.
Selwyn Joffe: As you can tell we remain bullish about our outlook, we remain laser focused on further efficiencies as we've just discussed and fully benefiting from a not easily duplicated global platform to meet demand for our non discretionary products as well as from our diagnostic testing capabilities.
Selwyn Joffe: We continue to leverage our expertise and solid customer and supplier partnerships. This includes our supply chain vendor finance program that benefits our suppliers. Our liquidity is very strong and we have the resources capacity and capability to further enhance shareholder value.
Selwyn Joffe: In closing I must recognize 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.
Selwyn Joffe: 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 Tomorrow and future meetings.
Selwyn Joffe: Wednesday, sorry, not tomorrow today ahead of myself.
Selwyn Joffe: Yeah.
Speaker Change: Thank you and gentlemen that will conclude our call. Thank you all for joining and you may now disconnect.
Speaker Change: [music].