MOTORCAR PARTS OF AMERICA INC

Previous wording

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers. Our on-going investments in global infrastructure and human resources reflects the significant expansion of manufacturing capacity to support multiple product lines. These investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico. In addition, during fiscal 2025, we added a new warehousing and distribution facility in Malaysia to support our future direct shipment programs.

Current wording

With a scalable infrastructure and abundant growth opportunities, we continue to focus on strategic growth by leveraging our competitive advantage and growing our industry position by providing innovative and intuitive solutions to our customers. To support our strategic growth, we have made investments, which included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, (iii) the realignment of production at our original 312,000 square foot facility in Mexico, and (iv) the addition of a warehousing and distribution facility in Malaysia to support our direct shipment programs.

Previous wording

During fiscal 2025, we continued to focus on strategic growth, improving profitability, and leveraging our industry position as a leading non-discretionary aftermarket parts supplier and customer relationships. The following significant accomplishments support our optimism:

Current wording

During fiscal 2026, we continued to focus on strategic growth, improving profitability and leveraging our industry position within a rapidly changing competitive environment for non-discretionary aftermarket parts and solutions. Our solid financial position, quality products and customer relationships are key competitive strengths, and we expect to further capitalize on these distinctive qualities in fiscal 2027. The following significant accomplishments support our optimism:

Previous wording

Gross profit increased 16.1 percent to a record $153.8 million;

Current wording

Gross profit increased 3.9 percent to a record $159.9 million;

Previous wording

We generated cash from operating activities of approximately $45.5 million;

Current wording

Generated cash from operating activities of approximately $19.2 million;

Previous wording

We expanded our product coverage for starters and alternators, brake calipers, brake pads, brake rotors, brake boosters, brake master cylinders, and wheel hubs with more than 629 new part numbers -- covering more than approximately 130 million vehicles in operation in North America;

Current wording

Expanded product coverage with more than 237 new part numbers -- covering more than approximately 54 million vehicles in operation in North America for our Hard Parts products;

Previous wording

The roll out of our JBT-1 bench-top testers continued to gain momentum, with the majority of retail stores in North America deploying our diagnostic units, or, we believe, planning to install them;

Current wording

Continued market share gains for our JBT-1 bench-top testers, with the majority of retail stores in North America deploying our diagnostic units; and

Previous wording

Our business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to foreign currency, evolving tariff policy, inflation, interest rates, and other economic conditions. Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

Current wording

Our business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to foreign currency, evolving tariff policy, inflation, interest rates, geopolitical events, and other economic conditions. Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

Previous wording

We source the majority of our raw materials and parts from suppliers in a variety of non-U.S. countries. The current U.S. government recently implemented tariffs and announced the possibility of increasing current tariffs or implementing additional ones. We expect these actions and retaliatory tariff adjustments by other countries to impact our business and contribute to inflationary cost increases. As a result, we are taking actions designed to mitigate the potential impacts of these tariffs, including, but not limited to, passing along price increases to our customers and negotiating cost concessions from our suppliers where possible. Absent any changes in trade regulations, we anticipate inflationary cost increases due to these tariffs and any resulting impact on macroeconomic conditions and our business to continue. There can be no assurance that the recently announced tariffs or future imposition of any tariffs, changes thereto, or actions taken by countries in response to the tariffs will not have a material adverse effect on our business, results of operations, financial condition, or liquidity in any period or that any actions we take to mitigate the impact of the tariffs will be effective.

Current wording

We source the majority of our raw materials and parts from suppliers in a variety of non-U.S. countries, which are subject to tariffs. As a result, we have taken actions designed to mitigate the potential impacts of tariffs, including, but not limited to, passing along price increases to our customers and negotiating cost concessions from our suppliers where possible. Absent any changes in trade regulations, we anticipate inflationary cost increases due to these tariffs and any resulting impact on macroeconomic conditions and our business to continue. There can be no assurance that these tariffs or future imposition of any additional tariffs, changes thereto, or actions taken by countries in response to these tariffs will not have a material adverse effect on our business, results of operations, financial condition, or liquidity in any period or that any actions we take to mitigate the impact of these tariffs will be effective.

Previous wording

Interest rates in the U.S. remain high as a result of the federal government’s efforts to curb on-going inflation. Although interest rates decreased slightly during fiscal 2025, overall, interest costs for our accounts receivable discount programs and borrowings under our credit facility, which have interest costs that vary with interest rate movements, remain high. The majority of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 6.2% for fiscal 2025 compared with 6.8% for fiscal 2024. The weighted average interest on borrowings under our credit facility was 7.46% at March 31, 2025 compared to 8.43% at March 31, 2024. Any future increases in interest rates will continue to adversely impact our financial results.

Current wording

Interest rates in the U.S. remain high as a result of the federal government’s efforts to curb on-going inflation. Although interest rates decreased slightly during fiscal 2026, overall, interest costs for our accounts receivable discount programs and borrowings under our credit facility, which have interest costs that vary with interest rate movements, remain high. Most of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 5.4% for fiscal 2026 compared with 6.2% for fiscal 2025. The weighted average interest on borrowings under our credit facility was 6.79% at March 31, 2026 compared with 7.46% at March 31, 2025. Any future increases in interest rates will continue to adversely impact our financial results.

Previous wording

Hard Parts, which includes (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,

Current wording

Hard Parts, which include (i) light duty rotating electric products such as alternators and starters and (ii) brake-related products, which includes brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and wheel hub assemblies and bearings,

Previous wording

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires us to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires us to annually disclose our income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied prospective basis, although optional retrospective application is permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.

Current wording

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires us to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires us to annually disclose our income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. We adopted this standard on a prospective basis as of March 31, 2026, which expanded our income tax disclosures.

Previous wording

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”) (Subtopic 220-40). This standard requires us to disclose, in the footnotes at each interim and annual reporting period, information about expenses by the nature of the expense in addition to certain disclosures about selling expenses. Entities are required to include the following relevant expense captions: (i) purchase of inventory, (ii) employee compensation, (iii) depreciation, (iv) intangible asset amortization, and (v) depreciation, depletion and amortization recognized as part of oil and gas producing activities. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Clarifying the Effective Date, which is intended to clarify the effective date of ASU No. 2024-03. As clarified in ASU 2025-01, the new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.

Current wording

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”) (Subtopic 220-40). This standard requires us to disclose, in the footnotes at each interim and annual reporting period, information about expenses by the nature of the expense in addition to certain disclosures about selling expenses. Entities are required to include the following relevant expense captions: (i) purchase of inventory, (ii) employee compensation, (iii) depreciation, (iv) intangible asset amortization, and (v) depreciation, depletion and amortization recognized as part of oil and gas producing activities. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Clarifying the Effective Date, which is intended to clarify the effective date of ASU No. 2024-03. As clarified in ASU 2025-01, the new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.

Previous wording

In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which seeks to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This guidance is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and disclosures.

Current wording

In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which seeks to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This guidance is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and disclosures.

Previous wording

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. As a result of this process, we recorded reserves for excess and obsolete inventory of $18,964,000 and $17,372,000 at March 31, 2025 and 2024, respectively. This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2025 compared with March 31, 2024.

Current wording

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. As a result of this process, we recorded reserves for excess and obsolete inventory of $19,002,000 and $18,964,000 at March 31, 2026 and 2025, respectively.

Previous wording

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Inventory unreturned includes only the Unit Cost of a finished goods. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts are classified in current assets. Inventory unreturned is valued in the same manner as our finished goods inventory.

Current wording

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Inventory unreturned includes only the Unit Cost of a finished good. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts are classified in current assets. Inventory unreturned is valued in the same manner as our finished goods inventory.

Previous wording

Contract assets consists of: (i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, (iv) finished goods premiums paid to customers, and (v) long-term core inventory deposits.

Current wording

Contract assets consists of: (i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, and (iv) finished goods premiums paid to customers.

Previous wording

Upfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers. These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expectto generate future revenues associated with the upfront payment. If we do not expect to generate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Current wording

Upfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers. These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expect to generate future revenues associated with the upfront payment. If we do not expect to generate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Previous wording

Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost. The core premiums are treated as an asset andrecognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Core premiums are recorded as long-term contract assets. Core premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Current wording

Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost. The core premiums are treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Core premiums are recorded as long-term contract assets. Core premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Previous wording

Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset andrecognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. Finished goods premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Finished goods premiums are recorded as long-term contract assets. Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Current wording

Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. Finished goods premiums are amortized over a period of up to eight years, adjusted for specific circumstances associated with the arrangement. Finished goods premiums are recorded as long-term contract assets. Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Previous wording

Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized net of allanticipated returns, marketing allowances, volume discounts, and other forms of variable consideration. Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms.

Current wording

Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized net of all anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration. Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms.

Previous wording

Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Current wording

Accrued core payments represent the agreed upon price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Previous wording

The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $34,411,000 and $38,312,000 at March 31, 2025 and 2024, respectively. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2025 compared with March 31, 2024.

Current wording

The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $29,923,000 and $34,411,000 at March 31, 2026 and 2025, respectively. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2026 compared with March 31, 2025.

Previous wording

In addition, our gross margin for fiscal 2025 compared with fiscal 2024 was impacted by (i) amortization of core and finished goods premiums paid to customers related to new business of $10,738,000 and $10,963,000, 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 $2,805,000 and $5,353,000, respectively.

Current wording

Gross Profit. Our consolidated gross profit was $159,901,000, or 20.2% of consolidated net sales, for fiscal 2026 compared with $153,828,000, or 20.3% of consolidated net sales, for fiscal 2025. Our gross margin for fiscal 2026 compared with fiscal 2025 was impacted by (i) continued amortization of core and finished goods premiums of $11,901,000 and $10,738,000, respectively, (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 $3,590,000 and $2,805,000, respectively, (iii) transition expenses of $2,571,000 and $1,298,000, respectively, in connection with our on-going strategy to utilize our global footprint to enhance operating efficiencies, and (iv) net tariff costs paid for products sold before price increases were effective of $2,124,000 and $4,607,000, respectively.

Previous wording

Sales and Marketing. Our sales and marketing expenses were consistent at $22,561,000 for fiscal 2025 compared with $22,481,000 for fiscal 2024.

Current wording

Sales and Marketing. Our sales and marketing expenses for fiscal 2026 were $25,491,000, which represents an increase of $2,930,000, or 13.0%, from fiscal 2025 of $22,561,000. This increase was primarily due to (i) $986,000 from increased headcount to support our growth initiatives, (ii) $782,000 in increased commissions expense, and (iii) $829,000 in increased advertising and other marketing expenses.

Previous wording

Research and Development. Our research and development expenses for fiscal 2025 were $11,405,000, which represents an increase of $1,410,000, or 14.1%, from fiscal 2024 of $9,995,000. This increase was primarily due to increased headcount, supplies, and outside consulting services.

Current wording

Research and Development. Our research and development expenses for fiscal 2026 were $14,196,000, which represents an increase of $2,791,000, or 24.5%, from fiscal 2025 of $11,405,000. This increase was primarily due to (i) $1,213,000 for increased employee-related costs primarily to support our new product introductions, (ii) $999,000 for engineering-related professional services, and (iii) $454,000 in 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 loss of $15,892,000 compared with a non-cash gain of $3,814,000 for fiscal 2025 and 2024, respectively. This change during fiscal 2025 compared with fiscal 2024 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash loss of $11,713,000 compared with a non-cash gain of $5,187,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in non-cash losses of $4,179,000 and $1,373,000, 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 $8,924,000 compared with a non-cash loss of $15,892,000 for fiscal 2026 and 2025, respectively. This change during fiscal 2026 compared with fiscal 2025 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities resulted in a non-cash gain of $6,409,000 compared with a non-cash loss of $11,713,000, respectively, and (ii) the change in the fair values of forward foreign currency exchange contracts resulted in a non-cash gain of $2,515,000 compared with a non-cash loss of $4,179,000, respectively.

Previous wording

Consolidated Operating Income. Our consolidated operating income for fiscal 2025 was $39,923,000 compared with $46,120,000 for fiscal 2024. This decrease was primarily due our foreign exchange impact of lease liabilities and forward contracts, which were a non-cash loss of $15,892,000 compared with a non-cash gain of $3,814,000 for fiscal 2025 and 2024, respectively, partially offset by higher gross profit and other items as discussed above.

Current wording

Consolidated Operating Income. Our consolidated operating income for fiscal 2026 was $65,835,000 compared with $39,923,000 for fiscal 2025. This increase was primarily due to the impact of the foreign exchange remeasurement of lease liabilities and forward contracts and other items as discussed above.

Previous wording

Interest Expense, net. Our interest expense for fiscal 2025 was $55,550,000, which represents a decrease of $4,490,000, or 7.5%, from interest expense for fiscal 2024 of $60,040,000. This decrease was primarily due to lower outstanding balances under our credit facility of $90,787,000 at March 31, 2025 compared with $128,000,000 at March 31, 2024 and lower interest rates on our accounts receivable discount programs and credit facility. The weighted average interest rate on our accounts receivable discount programs was 6.2% for fiscal 2025 compared with 6.8% for fiscal 2024. The weighted average interest on borrowings under our credit facility was 7.46% at March 31, 2025 compared to 8.43% at March 31, 2024.

Current wording

Interest Expense, net. Our interest expense for fiscal 2026 was $46,696,000, which represents a decrease of $8,854,000, or 15.9%, from interest expense for fiscal 2025 of $55,550,000. This decrease was primarily due to (i) lower interest rates on both our credit facility and accounts receivable discount programs, (ii) lower average outstanding balances under our credit facility, and (iii) lower utilization of our accounts receivable discount programs.

Previous wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability was a non-cash loss of $60,000 compared with a non-cash gain of $1,020,000 for fiscal 2025 and 2024, respectively, associated with the convertible notes issued on March 31, 2023.

Current wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability was a non-cash gain of $1,130,000 compared with a non-cash loss of $60,000 for fiscal 2026 and 2025, respectively, associated with the convertible notes issued on March 31, 2023.

Previous wording

Income Tax. We recorded a income tax expense of $3,783,000, or an effective tax rate of (24.1)%, and $36,176,000, or an effective tax rate of (276.8)%, for fiscal 2025 and 2024, respectively. The effective tax rate for fiscal 2025 was primarily impacted by (i) the change in valuation allowance, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m). Our effective tax rate for fiscal 2024 was primarily impacted by the establishment of a valuation allowance on deferred tax assets that were not expected to be realized.

Current wording

Income Tax. We recorded income tax expense of $7,875,000, or an effective tax rate of 38.9%, and $3,783,000, or an effective tax rate of (24.1)%, for fiscal 2026 and 2025, respectively. The effective tax rate for fiscal 2026 and 2025 were primarily impacted by (i) the change in valuation allowance on certain jurisdictions’ deferred tax assets resulting from current year activities, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).

Previous wording

A discussion of the changes in our results of operations for the year ended March 31, 2024, as compared with the year ended March 31, 2023, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2024, filed with the SEC on June 11, 2024, and the 10-K/A for the fiscal year ended March 31, 2024 as filed with the SEC on June 28, 2024, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Current wording

A discussion of the changes in our results of operations for the year ended March 31, 2025, as compared with the year ended March 31, 2024, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2025, filed with the SEC on June 9, 2025, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Previous wording

We had working capital (current assets minus current liabilities) of $160,446,000 and $156,034,000, a ratio of current assets to current liabilities of 1.5:1.0 at March 31, 2025 and 1.4:1.0 at March 31, 2024.

Current wording

We had working capital (current assets minus current liabilities) of $184,386,000 and $160,446,000, a ratio of current assets to current liabilities of 1.5:1.0 at March 31, 2026 and 2025, respectively.

Previous wording

Our primary source of liquidity was from cash generated from operations, the use of our receivable discount programs, and credit facility during fiscal 2025. We believe our cash and cash equivalents, use of receivable discount programs, amounts available under our credit facility, and other sources 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 and the use of our accounts receivable discount programs during the year ended March 31, 2026. We believe our cash generated from operations, cash and cash equivalents, use of accounts receivable discount programs, and amounts available under our credit facility are sufficient to satisfy our expected future liquidity needs over the next 12 months.

Previous wording

Net cash provided by operating activities was $45,477,000 and $39,172,000 for fiscal 2025 and 2024, respectively. The increase in our net cash provided by operating activities was due to increased operating results (net loss plus the net add-back for non-cash transactions in earnings), partially offset by changes in our working capital requirements to support our growth initiatives. We continue to manage our working capital to maximize our operating cash flow.

Current wording

Net cash provided by operating activities was $19,158,000 and $45,477,000 for fiscal 2026 and 2025, respectively. Our operating activities were primarily impacted by the following changes in our working capital: (i) the build-up of our inventory to support future sales and (ii) higher accounts receivable balances resulting from increased sales that will be collected in future periods. In addition, our operating activities were further impacted by changes in operating results (net income (loss) plus the net add-back for non-cash transactions in earnings). We continue to manage our working capital to maximize our operating cash flow.

Previous wording

Net cash used in investing activities was $4,469,000 and $479,000 for fiscal 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 $3,590,000 and $4,469,000 for fiscal 2026 and 2025, respectively. The change in our investing activities primarily resulted from decreased capital expenditures.

Previous wording

Net cash used in financing activities was $44,655,000 and $36,439,000 for fiscal 2025 and 2024, respectively. The change in our financing activities primarily resulted from (i) the net repayments of amounts outstanding under our revolving facility of $37,213,000 during fiscal 2025 compared with $17,200,000 during fiscal 2024 and (ii) the repurchase of 542,134 shares of our common stock for $4,832,000 during fiscal 2025. During the prior fiscal year, we paid off our remaining term loans of $13,125,000.

Current wording

Net cash used in financing activities was $10,980,000 and $44,655,000 for fiscal 2026 and 2025, respectively. The change in our financing activities primarily resulted from (i) net borrowing of $3,881,000 in fiscal 2026 compared with net repayments of $37,213,000 in fiscal 2025, under our revolving facility and (ii) the repurchase of 955,608 shares of our common stock for $11,351,000 in fiscal 2026 compared with 542,134 shares of our common stock for $4,832,000 in fiscal 2025.

Previous wording

A discussion of the changes in our operating activities, investing activities, and financing activities for the year ended March 31, 2024, as compared with the year ended March 31, 2023, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2024, filed with the SEC on June 11, 2024, and the 10-K/A for the fiscal year ended March 31, 2024, as filed with the SEC on June 28, 2024, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Current wording

A discussion of the changes in our operating activities, investing activities, and financing activities for the year ended March 31, 2025, as compared with the year ended March 31, 2024, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2025, filed with the SEC on June 9, 2025, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Previous wording

We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The Term Loans were repaid during the year ended March 31, 2024. The Credit Facility matures on December 12, 2028. The lenders have a security interest in substantially all of our assets. In June 2024, we enrolled in a feature with our lenders, under which we sweep our cash collections to pay down our revolving facility and borrow on-demand to fund payments. This feature is expected to reduce interest expense on borrowings under the Credit Facility.

Current wording

We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The Term Loans were repaid during the year ended March 31, 2024. The Credit Facility matures on December 12, 2028. The lenders have a security interest in substantially all of our assets.

Previous wording

We had $90,787,000 and $128,000,000 outstanding under the Revolving Facility at March 31, 2025 and 2024, respectively. In addition, $7,047,000 was outstanding for letters of credit at March 31, 2025. At March 31, 2025, after certain contractual adjustments, $135,150,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 7.46% and 8.43%, at March 31, 2025 and 2024, respectively.

Current wording

We had $94,668,000 and $90,787,000 outstanding under the Revolving Facility at March 31, 2026 and 2025, respectively. In addition, $15,470,000 was outstanding for letters of credit at March 31, 2026. At March 31, 2026, after certain contractual adjustments, $119,048,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 6.79% and 7.46%, at March 31, 2026 and 2025, respectively.