Motorcar Parts of America, Inc. (MPAA) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: the company faces challenges like gross margin decline and operational inefficiencies, but also shows positive aspects such as share repurchases and reduced net bank debt. The Q&A indicates optimism about market share gains and improved gross margins, but uncertainties remain, particularly with the EV emulator business. These factors balance out, leading to a neutral sentiment prediction for the stock price over the next two weeks.
Key Financial Performance
Gross Margin 19.6% for the fiscal third quarter, compared with 24.1% a year earlier. The decrease was due to lower sales volume, lower capacity absorption, and product mix. However, gross margin on a sequential basis increased from 18.0% in the fiscal first quarter and 19.3% in the fiscal second quarter.
Cash Generated $23.7 million for the 9-month period, with net bank debt decreasing by $10.9 million to $70.5 million from $81.4 million. This was after share repurchases of $8.4 million.
Net Bank Debt $70.5 million as of December 31, 2025, reduced from $81.4 million. This reduction was supported by cash generation and share repurchases.
EBITDA $68.1 million for the trailing 12 months ended December 31, 2025. EBITDA before the impact of noncash and onetime cash expenses was $84 million for the same period.
Net Bank Debt-to-EBITDA Ratio 0.84 as of December 31, 2025, calculated using net bank debt of $70.5 million and EBITDA before noncash and onetime expenses of $84 million.
Share Repurchases 669,472 shares repurchased for $8.4 million at an average share price of $12.47 during the 9-month period.
Cash from Operating Activities $32.8 million for the trailing 12 months ended December 31, 2025. Over the past 2 years, approximately $60 million was generated, reducing net bank debt by $32.3 million.
Liquidity Approximately $146 million as of December 31, 2025, including total cash and availability.
Vehicle Data (U.S.) The average age of U.S. light vehicles increased to 12.8 years from 12.5 years in 2024. The number of vehicles on the road climbed to 295.9 million from 291.1 million a year ago.
Vehicle Data (Mexico) Approximately 36 million vehicles in the Mexico market, up 2.8% from last year, with an average age of 16.2 years.
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Operating Highlights
EV emulator business: The company is exploring strategic alternatives for its EV emulator business, which is a non-core asset. They have invested in R&D for a next-generation emulator, expected to be significant for the EV market.
JBT-1 Bench Top Tester: The diagnostic business's JBT-1 Bench Top Tester continues to grow its installed base, with additional service-related revenue anticipated from software and database updates.
Mexico market expansion: The company is experiencing increased demand for aftermarket parts in Mexico, where the vehicle market grew by 2.8% to 36 million vehicles with an average age of 16.2 years. They are well-positioned to support U.S.-based retailers expanding into Latin and South America.
Gross margin improvement: Gross margin improved sequentially to 19.6% in Q3 from 18.0% in Q1 and 19.3% in Q2. The company expects further improvements through operating efficiencies, tariff mitigation, better scrap sales pricing, and relocating operations to low-cost facilities like Mexico.
Cash flow and debt reduction: The company generated $23.7 million in cash over 9 months, reduced net bank debt by $10.9 million to $70.5 million, and repurchased $8.4 million in shares.
Braking business: The company expects gains in its braking business to result in increased margins due to operating efficiencies and better utilization of facilities.
Shareholder value initiatives: The company is focused on maximizing shareholder value through share repurchases and debt reduction.
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Risk or Challenges
Customer Sales Reduction: One of the largest customers reduced purchases significantly, impacting third-quarter results. The recovery in ordering activity from this customer has been slower than anticipated, leading to a downward revision of year-end sales guidance for fiscal 2026.
Customer Store Closures and Distribution Consolidation: A major customer closed stores and consolidated distribution centers, resulting in an estimated $50 million impact on fiscal 2026 sales.
Gross Margin Decline: Gross margin decreased to 19.6% from 24.1% a year earlier due to lower sales volume, reduced capacity absorption, and unfavorable product mix.
Deferred Consumer Repairs: The industry has faced headwinds as consumers defer certain repairs, which could impact demand for nondiscretionary products in the short term.
Operational Efficiency Challenges: Lower sales volume led to reduced capacity absorption and operational inefficiencies, negatively affecting gross profit and gross margin.
Supply Chain and Cost Management: The company is reliant on initiatives like tariff mitigation, scrap sales pricing, and relocating operations to low-cost facilities to improve margins, which may pose execution risks.
EV Emulator Business Uncertainty: The company is exploring strategic alternatives for its EV emulator business, which is a non-core asset, creating uncertainty about its future contribution to the business.
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Guidance & Outlook
Year-End Sales Guidance for Fiscal 2026: Revised down to $750 million to $760 million due to a $50 million impact from a major customer's store closures and distribution center consolidations.
Operating Income for Fiscal 2026: Expected to be between $72 million and $79 million, with depreciation and amortization of approximately $10 million, excluding certain noncash and onetime expenses.
Gross Margin: Expected to improve in the fiscal fourth quarter due to increased ordering activities from a major customer and operational efficiencies.
Cash Flow and Liquidity: Company generated $23.7 million in cash for the 9-month period, with net bank debt reduced by $10.9 million to $70.5 million. Liquidity remains strong with $146 million in total cash and availability as of December 31, 2025.
EV Emulator Business: Exploring strategic alternatives to capitalize on proprietary technology, with ongoing investment in next-generation emulator development for the EV market.
Heavy-Duty Business: Anticipates continued momentum in supplying alternators and starters, with a focus on enhancing operating efficiencies and margins.
Aftermarket Parts Demand in Mexico: Experiencing increased demand, supported by a growing vehicle market (36 million vehicles, up 2.8% from last year) with an average age of 16.2 years.
Diagnostic Business: Anticipates additional service-related revenue from software and database updates for the JBT-1 Bench Top Tester, with potential new applications outside North America.
Nondiscretionary Aftermarket Parts: Expects growth opportunities due to the aging vehicle population (average age of U.S. light vehicles increased to 12.8 years) and deferred repairs not being a long-term option for consumers.
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Shareholder Return Plan
Share Repurchase Program: The company repurchased 669,472 shares for $8.4 million at an average share price of $12.47 during the 9-month period ending December 31, 2025. The company remains committed to further opportunities to enhance shareholder value, including share repurchases.
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Key Q&A
Q:How should we think about the sales disruption caused by the buying patterns of a specific customer? Was this a onetime reset or will purchasing remain subdued?
A:The sales disruption is mostly a onetime reset. The customer closed down a number of stores, representing a 15% reduction. The company remains conservative in its outlook, assuming a 15% reduction, but is optimistic about positive changes for the customer.
Q:With the customer closing stores, does this create an opportunity to cater better to stores taking up the market share?
A:Yes, the company expects to gain a fair share in the market as they have broad coverage across the board in those marketplaces.
Q:Can you walk us through the implied guidance for 4Q, particularly regarding operating income, gross margins, and OpEx?
A:Gross margins are expected to increase sequentially in 4Q compared to 3Q. Total operating expenses are expected to reduce, which will help meet the guidance range.
Q:Will currency fluctuations, particularly the strengthening peso, impact 4Q numbers?
A:The strengthening peso will impact noncash foreign exchange lease liabilities, but this is broken out as a separate line item and is noncash.
Q:Can you provide details on the divestiture of nonstrategic assets mentioned in the press release?
A:The company has an electric vehicle emulation business focused on simulation and testing of electronic drivetrains. While it is a unique and state-of-the-art product, it does not align with the company's focus on the aftermarket. The company believes there may be better opportunities for this business in the right distribution hands.
Q:Review of Unclear Management Responses
A:None of the questions were avoided or lacked clarity. All responses were direct and provided sufficient detail.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Commission Selwyn
EV emulator
Exchange Commission
MPA result
Relations today
Results optimism
SKUs model
Securities Exchange
Selwyn Joffe
activity customer
activity end
aerospace electronics
age car
age year
alternative supplier
basis capital
brake business
brand technology
business competitor
capital shareholder
car population
change industry
chip aerospace
commitment gain
competitor tailwind
contradiction MPA
customer fact
customer ordering
customer recovery
day contradiction
distributor name
dynamic liquidation
efficiency momentum
efficiency utilization
electronics research
product service
vehicle industry
MPAA Transcript
Motorcar Parts of America, Inc. (MPAA) Q3 2026 Earnings Call Transcript
Unknown2-9
The earnings call reveals mixed signals: the company faces challenges like gross margin decline and operational inefficiencies, but also shows positive aspects such as share repurchases and reduced net bank debt. The Q&A indicates optimism about market share gains and improved gross margins, but uncertainties remain, particularly with the EV emulator business. These factors balance out, leading to a neutral sentiment prediction for the stock price over the next two weeks.
Motorcar Parts of America, Inc. (MPAA) Q2 2026 Earnings Call Transcript
Unknown11-10
The earnings call presents mixed signals: strong sales growth and reduced net loss are positive, but gross margin decline and inventory realignment issues raise concerns. The Q&A reveals deferral impacts and consumer uncertainty, though mitigated by nondiscretionary nature of products. Share repurchases are positive, but tax volatility and economic headwinds create uncertainty. Overall, the positives and negatives balance out, leading to a neutral sentiment.
Motorcar Parts of America, Inc. (MPAA) Q1 2026 Earnings Call Transcript
Positive8-11
The earnings call highlights strong financial performance with record net sales and gross profit, alongside improved gross margins. Despite tariff and supply chain challenges, the company has effectively mitigated these risks. The share repurchase program further supports shareholder value. While management was vague on certain growth details, the overall sentiment remains positive due to robust earnings and optimistic guidance, likely driving a stock price increase in the short term.
Motorcar Parts of America, Inc. (MPAA) Q4 2025 Earnings Conference Call Transcript
Unknown6-9
The earnings call summary presents a mixed outlook. While there is positive news on debt reduction, share repurchases, and gross margin improvement, challenges such as tariffs and foreign exchange losses persist. The Q&A reveals management's evasiveness on tariff impacts, adding uncertainty. Despite optimistic guidance and strategic growth plans, the net loss and unclear tariff effects temper expectations. The stock price is likely to remain stable, reflecting a neutral sentiment.
MPAA Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
