MOTORCAR PARTS OF AMERICA INC Q4 FY2025 earnings call

• Mitigated current tariffs via customer price increases and supply chain initiatives, confident tariffs will be fully offset.
• Fiscal 2025 net sales $757M (+5.5%), gross profit $154M (+16.1%), operating cash flow $45.5M, net bank debt reduced by $32.6M.
• Repurchased 542,134 shares for $4.8M in fiscal 2025, anticipates enhancing shareholder value via cash generation.
• Nondiscretionary product portfolio and North American manufacturing footprint drive long-term success.
• Vehicle age in US is 12.8 years, vehicle registrations up, providing replacement opportunities.
• Quality-Built brand gaining market share in professional installer market.
• Diagnostic business expects more service-related revenue as tester installed base matures.

For fiscal 2025, net sales reached a record $757 million, up 5.5%, and gross profit was a record $154 million, up 16.1%. The hard parts business, led by rotating electrical and brake-related applications, is performing well. Brake-related products like calipers, pads, and rotors under the Quality-Built brand are gaining market share. The heavy-duty business is leveraging its position in the aftermarket, with growth opportunities in multiple platforms. The diagnostic business is seeing success with the JBT-1 Bench Top tester, with expansion planned. Chinese suppliers provide less than 25% of products and components, and Mexican and Canadian products are USMCA compliant and tariff-free. Hard part sales in Mexico are growing due to increased demand for aftermarket parts.

• Fiscal 2026 net sales expected between $780M and $800M (3%-5.6% y-o-y growth).
• Operating income expected between $86M and $91M (4.3%-10.4% y-o-y growth).
• Depreciation and amortization estimated at approximately $11M. Estimates exclude certain noncash items and onetime expenses, and impact of recent tariffs due to uncertainty.

• Tariffs cause uncertainty regarding timing and impact.
• Inability to recognize tax losses in specific jurisdictions may affect future tax rates.
• Sharply unfavorable noncash mark-to-market foreign exchange loss from Mexico lease liabilities and forward contracts.

Q: Selwyn, you mentioned tariffs increasing strategic competitive advantage. Can you expand on how tariffs help with market share? Are you having conversations with customers? And what positions you better in the global tariff environment?

A: We were less dependent on China supply chain way in advance, less than 25% of products from China. Ship direct from factories, pay tariffs only when sell product. Competitors with inventory in US will need to replenish with tariff goods, so cash requirement greater than ours.

Q: Carolina, regarding tariff, is the quarter a good representation of what to expect? Or is timing unpredictable?

A: Timing impact is unpredictable, will see more, but will disappear soon as price increases and initiatives kick in. Can't give exact guidance on timing yet.

Q: Carolina, about price increases, are they already enacted or expected?

A: Almost 100% of price increases have been accepted.

Q: Carolina, looking at guidance, expecting margin expansion. Elaborate on catalysts?

A: Initiatives to lower cost per unit, increase sales per unit, capacity absorption, and operating initiatives continue.