Q2 2026 Motorcar Parts of America Inc Earnings Call

Thank you for standing by. My name is Eric, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the Motorcar Parts of America, Incorporated fiscal 2026 second quarter conference call and webcast.

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 would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

If you would like to withdraw your question, press *1 again.

Thank you.

I would now like to turn the call over to Gary Maier, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Thank you, Eric. Thanks, everyone, for joining us for our fiscal second quarter call. Before I turn the call over to Selwyn 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 a safe harbor for certain forward-looking statements, including statements made during today's conference call.

Current expectations and beliefs concerning future developments and their potential effects on the company.

There can be no assurance. The future developments affecting the company will be those anticipated.

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 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 ongoing risks and uncertainties of the company's business, I refer you to the various filings with the SEC.

With that, I'd like to begin the call and turn it over to someone. Thank you, Gary.

I appreciate everyone joining us. Today, we have experienced strong consecutive quarters, and I want to highlight our first half performance. David will discuss both the quarter and six-month period in more detail, as well as trailing 12-month metrics.

For the first half, we reported continued sales growth of $31.8 million, or 8.4%.

Gross profit improvement of $6.2 million or 8.8%.

Strong operating cash flow of $31.9 million and net bank debt reduction of $24.6 million.

As well as share repurchases of 287,910 shares for $3.4 million at an average share price of $11.65.

This reflects well on our annual guidance and the future. We continue to focus on opportunities to further enhance shareholder value.

We remain focused and committed to being the leading supplier of non-discretionary automotive aftermarket parts.

Our team is focused on continuous improvement and success. We are excited by the opportunities for growth moving forward, particularly given the rapidly changing industry environment.

Equally important, we believe our financial strength and flexibility provide a distinct competitive advantage.

As you know, we offer a well-respected portfolio of products and services and have the capacity and ability to benefit from our state-of-the-art North American operational footprint. In short, we are well positioned to be the industry leader.

As I've highlighted before, the average age of U.S. light vehicles has risen to 12.8 years from 12.6 years in 2024.

In addition, the number of vehicles on the road climbed to 293.5 million, up from 289 million a year ago.

We expect increased replacement opportunities for the life of vehicles.

Particularly with consumers holding on to their cars for longer and new car prices recently reaching all-time highs.

We are encouraged by the continued success of our second largest product category, brake offerings, which includes brake calipers manufactured at our production operation in Mexico.

Our team is doing an exceptional job to further gain market share for the entire brake product line, as well as for our other non-discretionary product offerings.

We continue to leverage our strengths, offering our customers great products, industry-leading SKU coverage, and auto-fill rates, supported by value-added merchandising and marketing support.

In short, we are all committed and focused on our customers, offering quality products and services with rational pricing.

A quality-built brand, Name products are offered to the professional installer market through warehouse distributors and continue to gain market share.

As production volume increases for certain newer hard part products, such as brake-related offerings, we expect enhanced operating efficiency and overall margin improvement.

With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with respect 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.

We are becoming an increasingly important supplier to the heavy-duty rotating electric market, with opportunities to expand our quality-built brand name.

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.

With regard to our diagnostic business at JBT, the benchtop tester leads the industry. The install base is continuing to grow, with additional service-related revenue related to software updates and database updates.

We also expect more opportunities outside North America as the business evolves, including potential new applications that complement and leverage our technology.

We remain focused on benefiting from cost reduction initiatives to enhance margins, including strategic supply chain, sourcing changes, and capitalizing on our North American footprint.

As I mentioned, we believe the outlook is bright for non-discretionary aftermarket parts for the internal combustion engine markets, and we are focused on leveraging our capability and capacity to offer a broad range of SKUs for all makes and models of newer and older vehicles.

Well, the industry has expressed some recent headwinds due to consumers deferring certain repairs, as well as the impact of the recent government shutdown. Deferment is not really a long-term option for our non-discretionary products.

If your car doesn't start, stop; you're not driving.

We believe that there are meaningful opportunities for further growth as the competitive landscape changes.

Before I turn the call over to David to review our results in detail, let me summarize.

From a salesperson, we expect continued organic growth for our business supported by favorable long-term industry tailwinds and our strong financial position.

Our commercial heavy-duty market continues to grow, and our brake-related business is gaining further traction, particularly in brake calipers. In addition, our sales in the Mexico market are growing nicely, and we expect this momentum will continue and expand throughout the region.

Finally, our diagnostic business continues to grow nicely, and we look forward to ongoing success.

I should mention that net sales for the quarter were reflected by two unusual events that offset each other first.

We reduced our customer call returns approval in connection with the realignment of inventory at certain customer distribution centers, which resulted in a one-time gain for the quarter.

This one-time revenue recognition of $14.8 million nominally contributed $643,000 to profitability.

We reduced gross margin by 1.1% and it was completely neutral to cash flow.

In simple terms, we lost some business and picked up some other business.

Second quarter of our largest customers delayed purchases in an amount that offset the core revenue.

This delay is temporary and we anticipate it will result in increased orders during the second half of the year.

I want to emphasize that we are excited about our progress and future opportunities, and that we are confirming our guidance for fiscal.

2026.

This one-time call revenue is not included in our revenue guidance.

As referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are non-cash and beyond our control. Particularly, non-cash mark-to-market foreign exchange can have a positive or negative impact on our Mexican lease liabilities and forward contracts that we purchase.

We are focused on opportunities to minimize non-cash expenses, such as gains or losses related to foreign exchange, including funding. Our Mexican operations are funded with pesos from our sales in Mexico.

As our sales in Mexico continue to grow, we have reduced our purchases of Ford peso contracts.

We expect, over time, we will eliminate the need to purchase these contracts.

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

Thank you so much, and good morning everyone.

Let me summarize key financial performance metrics for the fiscal Q2 2026 quarter that we highlighted in this morning's news release. Additional information will be available in the 10-Q that will be filed later today.

Sales increased by 6.4% to $221.5 million.

Gross profit increased 3.5% to a second quarter record of $42.7 million.

Repurchased 90,114 shares for $1.4 million at an average price of $15.41.

Now, let me discuss our results in more detail.

Sales for the fiscal Q2 2026 second quarter increased by $13.3 million, or 6.4%, to $221.5 million, up from $208.2 million in the prior year.

The sales for the quarter reflect $4.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers, as someone mentioned previously.

Gross profit for the fiscal Q2 2026 quarter increased 3.5% to a second-quarter record of $42.7 million, up from $41.3 million a year earlier.

I should mention that gross profit for the quarter was also impacted by non-cash expenses.

The non-cash expenses reflect core and finish, cut premium, amortization and revaluation, of course, and customer shelves, which are unique to certain of our products and required by GAAP.

The total for all non-cash expenses in the quarter was approximately $3.6 million, or a 3% impact to gross margin, as detailed in Exhibit 3 in this morning's.

press release.

Gross margin for fiscal Q2 2026.

19.3% compared with 19.8% a year earlier.

In addition to the non-cash expenses previously explained, gross margin for the fiscal Q2 2026 quarter was also impacted by one-time cash expenses of $698,000, or a 3% impact to gross margin, as detailed in Exhibit 3 of this morning's earnings press release.

I should note that, excluding the non-cash expenses and one-time cash expenses, gross margin on an adjusted basis increased slightly, as detailed in Exhibit 3.

Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs.

We remain focused on other initiatives to enhance gross margins.

Operating expenses were $26.4 million for the fiscal Q2 2026 compared with $28.8 million last year.

Which benefited from a $1.5 million non-cash March market foreign exchange gain.

Compared with a $5.4 million non-cash, March to March, and foreign exchange loss in the prior year.

The remaining increase includes increased general and administrative expenses at our offshore locations, increased commissions, and increased research and development expenses.

Operating income for the fiscal Q2 2026 quarter increased 30.8% to $16.4 million, from $12.5 million in the prior year.

Interest expense for the fiscal second quarter decreased by $1.5 million to $12.7 million from $14.2 million a year ago, reflecting lower average outstanding balances under the company's credit facility and lower interest rates compared with a year ago.

For the second quarter, income tax expense was $3.6 million, compared with $912,000 for the prior year.

The effective tax rate for the fiscal or second quarter reflects, in part, the inability to recognize the benefit of losses in certain 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.

Net loss for fiscal Q2 2026 was $2.1 million, or 11 cents per share, compared with a net loss of $3 million, or 15 cents per share, for the prior year.

Net loss was impacted by non-cash expenses of $4.8 million, or $0.25 per share, and was affected by one-time cash expenses of $523,000, or $0.03 per share, as detailed in Exhibit 1.

As previously explained, higher sales volumes and operating efficiencies will further improve results.

EV for the fiscal second quarter was $16.5 million, reflecting $6.3 million of non-cash expenses and $698,000 of cash expenses, detailed in Exhibit 5 of this morning's earnings press release.

EBA before the impact of non-cash expenses and one-time cash expenses mentioned above was $23.5 million for the second quarter.

Let me discuss the 6-month results.

Sales for the fiscal 26 6-month period increased by $31.8 million, or 8.4%.

To a record $409.8 million from $378.1 million.

Net sales for the 6-month period reflected $14.8 million of poor revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers.

Gross profit for the fiscal 26 6-month period increased to a record $766.6 million, up from $70.5 million a year earlier.

Gross margin for the fiscal 26 6-month period was 18.7% compared with 18.6% a year earlier.

Gross margin for the fiscal Q2 2026 six-month period was impacted by $7.4 million, or 2.5%, of non-cash expenses.

And $2.1 million, or 0.5% of 1-time cash. Expenses as detailed in Exhibit 4.

Net income for the fiscal 26 6 month period was 893,000 or 4 cents per diluted share impacted by non-cash expenses of 3.5 million or 17 cents per diluted share and 1 time cash expenses of 1.6 million or 8 cents per diluted share.

Compared with a net loss of $21 million, or 1.7 cents per share, a year ago, impacted by various items detailed in Exhibit 2 of this morning's earnings press release.

EBITDA for the fiscal 2026 period was $37.2 million.

Eida was impacted by $4.6 million of non-cash expenses, as well as $2.1 million in one-time cash expenses, detailed in Exhibit 5 of this morning's earnings press release.

Debt before the impact of non-cash and one-time cash suspension mentioned above was $43.9 million for the current period.

Now, let me move on to cash flow and key corporate items.

The company generated cash of $21.9 million from operating activities during the fiscal Q2 2026 quarter.

And generated $31.9 million in operating activities for the fiscal 26th 6-month period compared with $2 million in the prior year’s fiscal 25 6-month period.

We remained focused on increasing operating profit and gross margin and generating positive cash flow, supported by growth 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.

Enhance inventory management and expand our vendor payment terms.

Net bank debt decreased by $17.7 million during the fiscal Q2 2026 to $56.7 million.

Million as explained. Previously, EBA before the impact of non-cash and one-time expenses. Cash expenses mentioned above were $43.9 million for the 6 months ended September 30, 2025.

Based on information provided above, and in our previous filings, EBITDA for the 12-month period ending September 30, 2025, was $73.9 million.

EB, before the impact of non-cash and one-time cash expenses, was $985.5 million for the same period.

To recap.

Our net bank debt was $56.7 million in September 2025.

Compared with EBITDA before the impact of non-cash and one-time cash expenses mentioned above of $95.5 million for the 12 months ended September 30, 2025.

For the past 2 years, through September 30, 2025, we have generated cash from operating activities of approximately $122 million, or approximately $6.21 per outstanding share on average, and we reduced net bank debt by approximately $98 million.

For the 12 months ending September 30, 2025, we have generated cash from operating activities of approximately $75 million.

Our liquidity remains very strong, with total cash and availability of approximately $161 million.

114 shares for $1.4 million and an average price of $15.41 under its current authorization program, supported by solid cash generation from operating activities.

For the 6-month period, the company repurchased 287,910 shares for $3.4 million, at an average share price of $11.65.

For further explanation on the reconciliation of items that impacted results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release.

I would now like to open the line for questions.

At this time, I would like to remind everyone that in order to ask a question, please press star, followed by the number 1 on your telephone keypad.

Your first question comes from the line of Brian Nagel with Oppenheimer.

Please go ahead.

Hey guys. Good afternoon, Marcos.

Um, congrats to the quarter here. So a couple of questions.

First off, uh, so when you mentioned in your comments...

Just on the effects of a deferral, you know, this has been a topic that we've heard from a number of companies within your space, ladies. So, I guess the question I have is if you could expand a little bit, right? And we recognize, like you said in your comments, I mean,

The brake fix type industry, so any temperature probe will be sure. But I guess the question I have is, you know, what what what are you seeing is, is there a, was there a measurable impact on the quarter? Uh, you know, from from go ahead? Yeah, this, um, there's some okay great. Um, yeah. So, you the questions are regarding the deferral, I think. Um,

You know, it's, there's there's, um, a customer that is going through some operational changes, in particular, relating to their warehousing. And, um, as a result of that, uh, we've had some purchases deferred, uh, for the quarter. We believe that customers committed, um, uh, uh, to continuing, uh, inventory levels. And don't believe that there is any fundamental, um, difference to that. And so the, you know, we we mentioned the, the 14 million of core Revenue was offset by reduction of about the same amount, but that deferral and we expect that we'll pick up that deferral in the in the back, 6 months of value.

So, um, you know, I think the net wash...

I mean, all in all, the numbers would have been better had we not had the deferral.

But, you know, excluding the revenue from the core revenue, I mean, it still meets all of our annual guidance expectations. And quite frankly, um,

You know, we're excited about the performance of the company right now, but it's significant cash flow generation.

That, you know, debt payback cash flows are basically coming from profitability and working capital, excluding the calls. And, uh, the fundamental outlook for our business. While there are some changes in the revenue, that's not abnormal for us. Um, uh, we expect that, you know, we will continue to maintain our momentum.

That's helpful. Then this, I guess, is the second question. So, uh, you know, that was the second question I have is just on consumer behavior.

You know, and I, I think you'd mentioned, I, I maybe we're probably, I think we're using the term "deferral" twice. I mean, that's in terms of the specific customer yours. But then also, if I heard you correctly, you were talking about at the consumer level. I mean, so the consumer level, you know, you're seeing some type of, you know, we maybe demand deferral, you know, is, is, is consumers, are, you know, pushing off projects longer. So I make sure I heard that correctly because that's something I think we've heard elsewhere.

Yeah. Yeah. I think anywhere where there's discretion, Brian, that there seems to be some deferral and some uncertainty. But.

For the majority of our products. For all of our products, they're not discretionary, the vehicle will not operate without replacing them. It is. You are capable of deferring, replacing your brakes, uh, for a little bit. But, you know, not too long. I mean, you, you've got to get the job done. So, um, you know, I think with our product line lineup, the deferral that deferral is different than the, the 1-time deferral on, on, on some restructuring of warehousing. But that deferral, I think is, is more

Nominally, on us, than on others.

Got it.

Great. I appreciate it. Thank you.

Thank you. Thank you.

Your next question comes from the line of Derek Sudberg with Cantor Fitzgerald.

Please go ahead.

Core um as well as breaking business and then Additionally, you know there's been some news flow regarding the first Brands. Um situation wondering if you could talk about whether or not, there are any any sort of knock-on effects um from from what's going on there and then I've got to follow up.

Yeah, I think market share for us.

I mean, it fluctuates a little bit, but I don't see any major material changes in market share right now.

Um,

I think, you know, if we look at at at the momentum of our business, our break related products, so certainly the ones that are picking up momentum faster than others. Um

You know, relative to First Brands, it's difficult for me to comment on. I mean, it's sad that something like that is.

You know, cast a veil over our industry. Having said that, I think for customers that are reliable.

Have integrity, have, uh, great products and...

I mean, I think there's going to be lots of opportunities. So, I mean, but really much more than that, I couldn't comment.

Got it. Um, and then as my follow-up, I wanted to touch on cash flow. Um, really good generation here. Looks like trailing 12 months.

Free cash flows are around $70 million, um, something like that. Um, and you guys have been buying back shares. Uh, can you talk about how you plan on utilizing uh, further cash flow? Wondering if the repurchases will continue. And then just looking at debt levels, um, how comfortable are you with where it's at? Um, do you plan on, you know, continue to reduce debt as well? Thanks.

Yeah, I think in light of what's happened to the stock today, I mean, certainly, it's in, you know, I think really to the extent we have liquidity, to the extent that we think.

I think there’s an undervaluation. I mean, I think they will continue to buy back stock. I mean, we do have an authorized uh,

Uh, an authorization out there to repurchase stock. So we'll have to look at that and continue.

Um,

as far as the debt levels, I mean, our debt levels are very low. I think it'll lay and continue, we'll continue to get lower right now. Um, you know, we think that having liquidity is going to

Leave us in a good state to be able to take advantage of numerous opportunities that will be unfolding in the marketplace.

And so,

Uh, we're excited about that. I think we are sitting in a good position.

um, and

having lots of liquidity will be helpful.

Really appreciate it. Thanks guys.

Thank you.

Yeah. No further questions at this time. I would now like to turn the call over to Selwyn Joffe for closing remarks. Please go ahead.

Thank you. In summary, we continue to be bullish about our outlook. We remain laser-focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet the demand and grow market share for our non-discretionary products, as well as for our diagnostic testing business.

We continue to leverage our expertise in solid customers and supply partnerships. Our liquidity is strong, our leverage is low, and we have the resource capacity and capability to further enhance shareholder value.

Let me reiterate our strategic focus.

Growing sales of our existing product lines. Continuous operational efficiency improvements to further enhance, margins. And we are making great progress there. Mitigating tariffs and increasing cash conversion by increased profitability and neutralization of working capital.

In closing, we appreciate the contributions of all our team members who are continuously focused on providing the highest level of service. We 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 and we host our fiscal 2026. Third quarter conference call in February and at various investor conferences and meetings. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.