Motorcar Parts of America, Inc. (MPAA) Earnings

Management highlights

### Overall Financial Performance for Fiscal 2026 - Fourth quarter net sales increased 9.9% year-over-year; full-year net sales increased 4.3% year-over-year - Fourth quarter gross profit increased 30.9% year-over-year; full-year gross profit increased 3.9% year-over-year. Gross margin reached 23.7% for Q4 and 20.2% for the full year; adjusted for non-cash and one-time items, Q4 gross margin was 25.8% - Fourth quarter operating income increased 29.4% year-over-year; full-year operating income increased 64.9% year-over-year, reaching 65.8 million (76.6 million adjusted for non-cash and one-time items) - Full-year net income was 12.4 million, a turnaround from a net loss of 19.5 million in the prior year; fourth quarter net income was 9.7 million, versus a net loss of 722,000 year-over-year ### Cash Flow and Balance Sheet - Full-year operating cash flow was 19.2 million, with 57 million generated before working capital requirements. Working capital was impacted by a 32.5 million increase in accounts receivable (from strong late Q4 sales) and inventory ramp-up for new fiscal 2027 business - Net bank debt was reduced to 80 million despite 11.4 million in share repurchases during fiscal 2026. Net debt to adjusted EBITDA ratio is 0.93x, with total liquidity of 133.7 million as of quarter end - Over the past three years, the company has generated over 103.8 million in cumulative operating cash flow, supporting continued debt reduction, share repurchases, and growth investments ### Strategic Priorities - Core strategy focuses on improving profitability, gaining market share across all product categories, and optimizing working capital. AI tools are being explored to support working capital neutralization - The company leverages its low-cost global footprint, broad SKU coverage, high order fill rates, and strong brand reputation to serve retail and traditional aftermarket customers - Management is pursuing margin expansion via cost reduction, tariff mitigation, improved scrap pricing, operational relocation to low-cost facilities, and greater capacity utilization - The non-discretionary aftermarket parts market for internal combustion engines has strong structural tailwinds: the average age of U.S. light vehicles has increased to 12.8 years, and total vehicles on the road grew to 295.9 million, driving higher replacement demand that is not easily deferrable

Guidance

For fiscal 2027 (ending March 31, 2027), management provided the following guidance: - Net sales are expected to be between 780 million and 800 million, representing year-over-year growth of 7.5% to 10.2% after excluding non-recurring items including tariff pass-throughs - An additional 100 million in annualized net sales from new commitments is expected by the end of fiscal 2027, but is excluded from the base guidance due to uncertain timing of volume ramp-up. Including this additional business, annualized net sales are expected to exceed 900 million by the end of fiscal 2027 - Operating income is projected between 86 million and 91 million, representing 12.3% to 18.8% year-over-year growth. This guidance reflects current tariff policy and excludes non-cash and one-time expenses - Depreciation and amortization is expected to be approximately 9 million, with adjusted EBITDA projected between 95 million and 100 million - The ramp-up of new committed business is expected to occur in the second half of fiscal 2027, as customers work through liquidated inventory acquired from a failed competitor

Segment performance

Motor Car Parts of America does not break out full segment-level absolute financials or revenue contribution percentages in this call. High-level segment performance is outlined as follows: 1. **Light Vehicle Aftermarket Parts (including break-related business)**: The segment is experiencing accelerating gains that support overall company margin goals, with growing utilization of existing facilities. Quality-branded products are gaining market share across both traditional distribution/repair and retail channels, benefiting from industry tailwinds of a growing and aging U.S. light vehicle fleet that increases demand for replacement parts. The breakpad segment in particular is seeing stronger momentum than management initially anticipated. 2. **Heavy-Duty Aftermarket Business**: The business is leveraging its strong reputation in the heavy-duty rotating electrical market (alternators and starters) to build momentum and improve margins and operating efficiency. The company is in the process of relocating its heavy-duty operations from Canada to Mexico (started in late fiscal 2026) to access lower costs, and is seeing growing demand for aftermarket parts in Mexico that complements its existing regional operational and distribution footprint. 3. **Diagnostic Business**: The segment's industry-leading JBT1 benchtop tester has a growing installed base, with expanding international opportunities and potential for new technology-complementary applications. 4. **EEV Emulator Business**: This is a non-core asset with proprietary, industry-leading next-generation emulator technology that has secured new prestigious original equipment (OE) customer commitments; the company is exploring strategic alternatives for this business.

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to risks and uncertainties beyond management's control, including failure to achieve anticipated growth and customer opportunity outcomes - Geopolitical instability and macroeconomic uncertainty (including fluctuating fuel prices affecting miles driven, unanticipated changes in consumer behavior, and mild weather impacts on demand) create uncertainty for demand projections - Timing of ramp-up for new business is uncertain, as it depends on customers working through acquired competitor inventory - The 100 million in incremental new sales is excluded from guidance due to uncertainty around timing of execution - Supply chain instability at over-leveraged competitors creates opportunity but also introduces near-term volume volatility as customers adjust inventory levels

Analyst Q&A

• Q: The 100 million in incremental annualized sales not included in guidance – how much of this opportunity comes from competitor bankruptcy dislocation, and how sticky is this new business long-term? /

  A: A large portion of the incremental opportunity is tied to competitor supply chain dislocation, but the company also is seeing meaningful organic growth unrelated to this market shift. Management sees long-term upside from both sources of growth, and benefits from strong industry fundamentals that support ongoing demand. The fundamentals of a growing, aging vehicle fleet and higher new/used car prices push consumers to keep vehicles longer, supporting sustained demand for the company's non-discretionary replacement parts.

• Q: The customer ordering disruption that impacted Q3 has seemingly normalized – has the relationship returned to full baseline, and is any remaining recovery volume expected? /

  A: The disrupted customer's revenue has returned, but the customer permanently closed 15% of its store locations, so the new baseline is approximately 85% of prior revenue levels. Management remains optimistic about the overall customer relationship and broader industry demand, and continues to see broader opportunity from supply chain challenges at over-leveraged competitors.

• Q: What explains the full-year adjusted gross margin trend, and what should be expected for gross margin in fiscal 2027? /

  A: Management remains focused on ongoing gross margin accretion, with cost reduction and efficiency initiatives across all product lines lifting margin performance. The significant new business commitments will drive margin expansion via higher capacity utilization and overhead absorption in fiscal 2027. Management provided baseline guidance that excludes uncertain new business timing, with a much higher expected run rate by year end once new volumes ramp up.

• Q: What macro assumptions are incorporated into fiscal 2027 guidance, particularly around factors like fuel prices and consumer demand? /

  A: Guidance assumes broad macro status quo, and accounts for observed factors including lower miles driven from higher fuel prices and mild weather impacts on sales. Non-discretionary parts see far less deferral than discretionary products, so demand is relatively resilient to macro headwinds. Guidance takes a modest baseline outlook given geopolitical uncertainty, but management is particularly optimistic about the fast-growing break pad segment, which is outperforming even the company's prior expectations.