MOTORCAR PARTS OF AMERICA INC

Previous wording

Net Sales. Our consolidated net sales for the three months ended June 30, 2025 were $188,364,000, which represents an increase of $18,477,000, or 10.9%, from the three months ended June 30, 2024 of $169,887,000. Our sales for the three months ended June 30, 2025 compared with the three months ended June 30, 2024 reflect continued strong demand for rotating electrical and brake-related products.

Current wording

Net Sales. Our consolidated net sales for the three months ended September 30, 2025 were $221,470,000, which represents an increase of $13,284,000, or 6.4%, from the three months ended September 30, 2024 of $208,186,000. Our sales for the three months ended September 30, 2025 compared with the three months ended September 30, 2024 reflect the recognition of remanufactured core revenue of $14,797,000 in connection with the realignment of inventory at certain customer distribution centers offset by the timing of purchases by one of our largest customers.

Previous wording

Gross Profit. Our consolidated gross profit was $33,917,000, or 18.0% of consolidated net sales, for the three months ended June 30, 2025 compared with $29,174,000, or 17.2% of consolidated net sales, for the three months ended June 30, 2024. The increase in our gross margin for the three months ended June 30, 2025 reflects (i) increased utilization of our facilities, (ii) the benefit from our strategies to enhance operating efficiencies and cost-saving initiatives, and (iii) changes in product mix. These increases were partially offset by $1,426,000 for net tariff costs paid for products sold before price increases were effective.

Current wording

Gross Profit. Our consolidated gross profit was $42,727,000, or 19.3% of consolidated net sales, for the three months ended September 30, 2025 compared with $41,277,000, or 19.8% of consolidated net sales, for the three months ended September 30, 2024. The gross profit was impacted by $698,000 for net tariff costs paid for products sold before price increases were effective.

Previous wording

In addition, our gross margin for the three months ended June 30, 2025 compared with the three months ended June 30, 2024 was impacted by (i) continued amortization of core and finished goods premiums paid to customers of $2,847,000 and $2,728,000, respectively and (ii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $1,026,000 and $394,000, respectively.

Current wording

In addition, our gross margin for the three months ended September 30, 2025 and 2024 was impacted by (i) the continued amortization of core and finished goods premiums of $2,988,000 and $2,621,000, respectively and (ii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $1,225,000 and $1,164,000, respectively.

Previous wording

Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 2025 were $6,210,000, which represents an increase of $761,000, or 14.0%, from the three months ended June 30, 2024 of $5,449,000. This increase was primarily due to increased commissions expense and increased headcount.

Current wording

Sales and Marketing. Our sales and marketing expenses for the three months ended September 30, 2025 were $6,811,000, which represents an increase of $977,000, or 16.7%, from the three months ended September 30, 2024 of $5,834,000. This increase was primarily due to (i) $459,000 of increased commissions expense and (ii) $359,000 from increased headcount to support our growth initiatives.

Previous wording

Research and Development. Our research and development expenses for the three months ended June 30, 2025 were $3,306,000, which represents an increase of $873,000, or 35.9%, from the three months ended June 30, 2024 of $2,433,000. This increase was primarily due to increased headcount, professional services, and supplies.

Current wording

Research and Development. Our research and development expenses for the three months ended September 30, 2025 were $3,928,000, which represents an increase of $1,485,000, or 60.8%, from the three months ended September 30, 2024 of $2,443,000. This increase was primarily due to (i) $787,000 for engineering-related professional services, (ii) $410,000 for increased headcount to support our new product introductions, and (iii) $286,000 of increased expense for supplies and our sample library.

Previous wording

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash gain of $8,348,000 compared with a non-cash loss of $11,078,000 for the three months ended June 30, 2025 and 2024, respectively. This change during the three months ended June 30, 2025 compared with the three months ended June 30, 2024 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash gain of $4,002,000 compared with a non-cash loss of $5,709,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $4,346,000 compared with a non-cash loss of $5,369,000, respectively, due to the changes in their fair values.

Current wording

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash gain of $1,469,000 compared with a non-cash loss of $5,428,000 for the three months ended September 30, 2025 and 2024, respectively. This change during the three months ended September 30, 2025 compared with the three months ended September 30, 2024 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash gain of $1,467,000 compared with a non-cash loss of $3,978,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $2,000 compared with a non-cash loss of $1,450,000, respectively, due to the changes in their fair values.

Previous wording

Consolidated Operating Income (Loss). Our consolidated operating income for the three months ended June 30, 2025 was $20,069,000 compared with a consolidated operating loss of $6,456,000 for the three months ended June 30, 2024. This increase was primarily due to (i) our foreign exchange impact of lease liabilities and forward contracts, which were a non-cash gain of $8,348,000 compared with a non-cash loss of $11,078,000, (ii) increased gross profit, (iii) decreased general and administrative expenses, and (iv) other items as discussed above.

Current wording

Consolidated Operating Income. Our consolidated operating income for the three months ended September 30, 2025 was $16,371,000 compared with $12,520,000 for the three months ended September 30, 2024. This increase was primarily due to (i) our foreign exchange impact of lease liabilities and forward contracts and (ii) other items as discussed above.

Previous wording

Interest Expense, net. Our interest expense for the three months ended June 30, 2025 was $12,812,000, which represents a decrease of $1,575,000, or 10.9%, from interest expense for the three months ended June 30, 2024 of $14,387,000. This decrease was primarily due to (i) lower average outstanding balances under our credit facility and (ii) lower interest rates on both our credit facility and accounts receivable discount programs.

Current wording

Interest Expense, net. Our interest expense for the three months ended September 30, 2025 was $12,699,000, which represents a decrease of $1,483,000, or 10.5%, from interest expense for the three months ended September 30, 2024 of $14,182,000. This decrease was primarily due to (i) lower average outstanding balances under our credit facility and (ii) lower interest rates on both our credit facility and accounts receivable discount programs.

Previous wording

Income Tax. We recorded an income tax expense of $2,425,000, or an effective tax rate of 44.4%, and income tax benefit of $178,000 or an effective tax rate of 1.0%, for the three months ended June 30, 2025 and 2024, respectively. The effective tax rate for the three months ended June 30, 2025, was primarily impacted by the change in valuation allowance on certain jurisdictions' deferred tax assets resulting from current year activities and foreign income taxed at rates that are different from the federal statutory rate.

Current wording

Income Tax. We recorded an income tax expense of $3,561,000, or an effective tax rate of 252.2%, and $912,000, or an effective tax rate of (44.7)%, for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate for the three months ended September 30, 2025, was primarily impacted by the change in valuation allowance on certain jurisdictions’ deferred tax assets resulting from current year activities and foreign income taxed at rates that are different from the federal statutory rate.

Previous wording

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2025 were $12,680,000, which represents a decrease of $3,990,000, or 23.9%, from the three months ended June 30, 2024 of $16,670,000. This decrease was primarily due to (i) a headcount reduction in the prior year, which resulted in $2,940,000 of severance during the three months ended June 30, 2024 and (ii) the benefit of favorable fluctuations in foreign currency exchange rates on transactions denominated in foreign currencies during the current year compared with the prior year.

Current wording

General and Administrative. Our general and administrative expenses for the six months ended September 30, 2025 were $29,766,000, which represents a decrease of $1,956,000, or 6.2%, from the six months ended September 30, 2024 of $31,722,000. This decrease was primarily due to a headcount reduction in the prior year, which resulted in $2,940,000 of severance during the six months ended September 30, 2024, partially offset by $913,000 of increased share-based compensation.

Previous wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability associated with the convertible notes issued on March 31, 2023 was a non-cash loss of $1,790,000 compared with a non-cash gain of $2,580,000 for the three months ended June 30, 2025 and 2024, respectively.

Current wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability associated with the convertible notes issued on March 31, 2023 was a non-cash loss of $4,050,000 compared with a non-cash gain of $2,200,000 for the six months ended September 30, 2025 and 2024, respectively.

Previous wording

We had working capital (current assets minus current liabilities) of $158,766,000 and $160,446,000, a ratio of current assets to current liabilities of 1.4:1.0 at June 30, 2025 and 1.5:1.0 at March 31, 2025.

Current wording

We had working capital (current assets minus current liabilities) of $171,950,000 and $160,446,000, a ratio of current assets to current liabilities of 1.5:1.0 at September 30, 2025 and March 31, 2025.

Previous wording

Our primary source of liquidity was from cash generated from operations, the use of our receivable discount programs, and credit facility during the three months ended June 30, 2025. We believe our cash and cash equivalents, use of receivable discount programs, and amounts available under our credit facility are sufficient to satisfy our expected future liquidity needs, including lease and capital expenditure obligations over the next 12 months.

Current wording

Our primary source of liquidity was from cash generated from operations, the use of our receivable discount programs, and credit facility during the six months ended September 30, 2025. We believe our cash and cash equivalents, use of receivable discount programs, and amounts available under our credit facility are sufficient to satisfy our expected future liquidity needs, including lease and capital expenditure obligations over the next 12 months.

Previous wording

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During the three months ended June 30, 2025, we repurchased 197,796 shares of our common stock for $1,996,000. As of June 30, 2025, $25,543,000 has been utilized and $11,457,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility and convertible notes. We retired the 1,576,937 shares repurchased under this program through June 30, 2025. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Current wording

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During the six months ended September 30, 2025, we repurchased 287,910 shares of our common stock for $3,355,000. As of September 30, 2025, $26,932,000 has been utilized and $10,068,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility and convertible notes. We retired the 1,667,051 shares repurchased under this program through September 30, 2025. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Previous wording

Net cash provided by operating activities was $10,028,000 compared with net cash used in operating activities of $20,841,000 during the three months ended June 30, 2025 and 2024, respectively. The changes in our operating activities were primarily due to (i) an increase in our accounts payable during the three months ended June 30, 2025 to support the build-up of our inventory in anticipation of higher sales compared with a decrease in our accounts payable during the three months ended June 30, 2024 and (ii) increased operating results (net income plus the net add-back for non-cash transactions in earnings). We continue to manage our working capital to maximize our operating cash flow.

Current wording

Net cash provided by operating activities was $31,893,000 and $2,011,000 during the six months ended September 30, 2025 and 2024, respectively. The changes in our operating activities were primarily due to (i) changes in our working capital as we continue to maximize our operating cash flow and (ii) increased operating results (net income (loss) plus the net add-back for non-cash transactions in earnings).

Previous wording

Net cash used in investing activities was $806,000 and $512,000 during the three months ended June 30, 2025 and 2024, respectively. The change in our investing activities primarily resulted from increased capital expenditures.

Current wording

Net cash used in investing activities was $1,742,000 and $979,000 during the six months ended September 30, 2025 and 2024, respectively. The change in our investing activities primarily resulted from increased capital expenditures.

Previous wording

Net cash used in financing activities was $6,778,000 compared with net cash provided by financing activities of $15,166,000 during the three months ended June 30, 2025 and 2024, respectively. The change in our financing activities were primarily due to (i) the net repayments of amounts outstanding under our revolving facility during the three months ended June 30, 2025 compared with net borrowing during the three months ended June 30, 2024 and (ii) the repurchase of 197,796 shares of our common stock for $1,966,000 during the three months ended June 30, 2025.

Current wording

Net cash used in financing activities was $24,341,000 and $4,365,000 during the six months ended September 30, 2025 and 2024, respectively. The change in our financing activities were primarily due to (i) increased net repayments of amounts outstanding under our revolving facility during the six months ended September 30, 2025 compared with the six months ended September 30, 2024 and (ii) the repurchase of 287,910 shares of our common stock for $3,355,000 during the six months ended September 30, 2025.

Previous wording

We had $86,856,000 and $90,787,000 outstanding under the Revolving Facility at June 30, 2025 and March 31, 2025, respectively. In addition, $11,888,000 was outstanding for letters of credit at June 30, 2025. At June 30, 2025, after certain contractual adjustments, $134,341,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 7.40% and 7.46%, at June 30, 2025 and March 31, 2025, respectively.

Current wording

We had $72,419,000 and $90,787,000 outstanding under the Revolving Facility at September 30, 2025 and March 31, 2025, respectively. In addition, $15,470,000 was outstanding for letters of credit at September 30, 2025. At September 30, 2025, after certain contractual adjustments, $145,376,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 7.42% and 7.46%, at September 30, 2025 and March 31, 2025, respectively.

Previous wording

The Credit Facility requires us to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and a specified minimum undrawn availability. During the three months ended June 30, 2025, undrawn availability was greater than the 22.5% threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.

Current wording

The Credit Facility requires us to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and a specified minimum undrawn availability. During the six months ended September 30, 2025, undrawn availability was greater than the 22.5% threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.

Previous wording

The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at June 30, 2025 and March 31, 2025. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $12,900,000 and $9,000,000, and an asset of $3,640,000 and $1,530,000 at June 30, 2025 and March 31, 2025, respectively. During the three months ended June 30, 2025 and 2024, we recorded a loss of $1,790,000 and a gain of $2,580,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statement of operations and condensed consolidated statements of cash flows.

Current wording

The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at September 30, 2025 and March 31, 2025. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $29,600,000 and $9,000,000, and an asset of $18,080,000 and $1,530,000 at September 30, 2025 and March 31, 2025, respectively. During the three months ended September 30, 2025 and 2024, we recorded a non-cash loss of $2,260,000 and $380,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statement of operations. During the six months ended September 30, 2025 and 2024, we recorded a non-cash loss of $4,050,000 and a non-cash gain of $2,200,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statements of operations and condensed consolidated statements of cash flows.

Previous wording

We utilize a supplier finance program, which allows certain of our suppliers to sell their receivables due from us to participating financial institutions at the sole discretion of both the supplier and the financial institutions. The program is administered by a third party. Commitments from participating financial institutions that are available to suppliers under this program were $30,000,000 at June 30, 2025 and March 31, 2025. We have no economic interest in the sale of these receivables and no direct relationship with the financial institution. Payments to the third-party administrator are based on services rendered and are not related to the volume or number of financing agreements between suppliers, financial institution, and the third-party administrator. We are not a party to agreements negotiated between participating suppliers and the financial institution. Our obligations to our suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in this program. We do not provide guarantees and there are no assets pledged to the financial institution or the third-party administrator for the committed payment in connection with this program. At June 30, 2025 and March 31, 2025, we had $31,292,000 and $33,661,000, respectively, of outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheets.

Current wording

We utilize a supplier finance program, which allows certain of our suppliers to sell their receivables due from us to participating financial institutions at the sole discretion of both the supplier and the financial institutions. The program is administered by a third party. Commitments from participating financial institutions that are available to suppliers under this program increased to $40,000,000 from $30,000,000 during the three months ended September 30, 2025. We have no economic interest in the sale of these receivables and no direct relationship with the financial institution. Payments to the third-party administrator are based on services rendered and are not related to the volume or number of financing agreements between suppliers, financial institution, and the third-party administrator. We are not a party to agreements negotiated between participating suppliers and the financial institution. Our obligations to our suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in this program. We do not provide guarantees and there are no assets pledged to the financial institution or the third-party administrator for the committed payment in connection with this program. At September 30, 2025 and March 31, 2025, we had $36,644,000 and $33,661,000, respectively, of outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheets.

Previous wording

Our total capital expenditures were $2,708,000 and $493,000 for three months ended June 30, 2025 and 2024, respectively. These capital expenditures include (i) cash paid for the purchase of plant and equipment, (ii) plant and equipment acquired under finance leases, and (iii) non-cash capital expenditures. Capital expenditures for the three months ended June 30, 2025 primarily include the purchase of equipment for our current operations and our global growth initiatives. We expect to incur approximately $8,000,000 of capital expenditures primarily to support our global growth initiatives and maintenance of our facilities and equipment during fiscal 2026. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Current wording

Our total capital expenditures were $3,866,000 and $1,219,000 for six months ended September 30, 2025 and 2024, respectively. These capital expenditures include (i) cash paid for the purchase of plant and equipment, (ii) plant and equipment acquired under finance leases, and (iii) accrued capital expenditures. Capital expenditures for the six months ended September 30, 2025 primarily include the purchase of equipment for our current operations and our global growth initiatives. We expect to incur approximately $7,000,000 of capital expenditures primarily to support our global growth initiatives and maintenance of our facilities and equipment during fiscal 2026. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Previous wording

We have an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. We renewed this operating lease for an additional three-year period, effective January 1, 2025. The rent expense recorded for this related party lease was $93,000 and $81,000 for the three months ended June 30, 2025 and 2024, respectively.

Current wording

We have an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. We renewed this operating lease for an additional three-year period, effective January 1, 2025. The rent expense recorded for this related party lease was $94,000 and $81,000 for the three months ended September 30, 2025 and 2024, respectively. The rent expense recorded for this related party lease was $187,000 and $162,000 for the six months ended September 30, 2025 and 2024, respectively.