Hello, everyone. Thank you for joining us and welcome to the Motorcar Parts of America, Inc. Fiscal 2027 Second Quarter Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Gary Maier, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Thank you, Caleb, and thanks everyone for joining us. Before I turn the call over to Selwyn Joffe, Chairman, President, and Chief Executive Officer, and David Le, our Chief Financial Officer, I'd like to remind everyone of the safe harbor statement included in today's press release. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during today's conference call regarding future financial performance, sales growth, margin improvement, operating efficiencies, customer demand, new business strategies, capacity utilization, working capital liquidity, debt levels, cash flows, strategic initiatives, and market conditions. These statements are based on current expectations, estimates, forecasts, and assumptions and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to risks and uncertainties, including changes in customer ordering patterns, customer concentration, Competitive conditions, supply chain constraints, inflation, tariffs, interest rates, credit availability, labor and production costs, inventory levels, operational execution, and macroeconomic conditions, and other risks described in the company's most recent Form 10-Q and other filings with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking statements except as required by law. For a more detailed discussion of some of our ongoing risks and uncertainties of the company's business, I refer you to the various filings. With that, I'd like to begin the call and turn the call over to Selwyn Joffe.

Thank you, Gary. Good morning, everyone, and thank you for joining us. As outlined in our earnings release this morning, our second quarter results reflect delayed customer orders There were also delayed orders relating to the realignment of inventory at certain customer distribution centers. Also, there were lower tariff pass-throughs compared with the prior year. While these conditions have affected our near-term performance, we remain confident in the underlying fundamentals of our industry and, most importantly, in the substantial opportunities we are developing to expand our business and improve profitability. I want to focus today on several developments that we believe will strengthen Motor Car Parts of America's competitive position and provide a foundation for meaningful future growth. First, we have secured nearly $60 million in incremental annualized new business awards from both existing and new customers. These awards represent product programs we were not previously supplying. with anticipated annual volumes based on customer requirements and historical sales activity. This is an important distinction. We are not simply forecasting opportunities. We have been awarded business that we expect to translate into additional revenue as the programs launch and mature. Small initial shipments have already commenced, and we expect all these programs to launch during the second half of this fiscal 2027. with the majority of these programs launching towards fiscal year-end. We also currently anticipate approximately $25 million in incremental annualized sales by the end of March with additional contributions expected as these programs ramp during fiscal 2028. We believe these awards demonstrate our ability to gain market share even during a period of softer industry demand. Turning to our brake business, brakes have become our second major product category, building on more than 50 years of experience and our established leadership in rotating electrical products. We believe this is particularly attractive because brakes represent an essential, non-discretionary wear category with multiple replacement opportunities over the life of the vehicle. Our brake-related product offerings, including calipers, pads, Rodas, Master Cylinders, Power Boosters, Wheel Hubs, and Brake Shoes provide opportunities to expand our relationships with major retailers and professional aftermarket customers. The relaunch of our Centric Parts brand represents an important additional opportunity. Centric is an established name in the professional brake aftermarket, and we believe that combining that brand with our existing manufacturing capabilities Product coverage and distribution infrastructure significantly strengthens our competitive position. Importantly, potential centric sales are not included in our current incremental growth estimates. We also believe increased utilization of our existing brake manufacturing capacity can contribute to improved operating leverage and profitability as these volumes grow. We are also encouraged by the expansion of our business opportunities beyond the United States. Mexico is becoming an increasingly important growth market for us. Some of our largest customers are expanding their operations there, creating additional opportunities for Motor Car Parts of America to supply products through our established relationships, capability, and performance. Some of these opportunities are included in our current new business expectations, while others represent additional potential growth. We also see opportunities as major aftermarket customers expand geographically into Canada. Our established North American relationships combined with our manufacturing and distribution capabilities provide a strong platform to support these exciting developments. Turning to our heavy duty rotating electric business, We have completed the relocation of this operation from Canada into our existing manufacturing facility in Mexico, where production has commenced. This initiative is an important part of our continuing efforts to improve our manufacturing competitiveness. By leveraging existing infrastructure, manufacturing resources, and operating capabilities, we expect to reduce costs, improve production efficiencies, and benefit from operating synergies. We believe this will strengthen our competitive position in the heavy-duty aftermarket and improve our ability to pursue additional business. Another business demonstrating continued positive momentum is our rotating electric diagnostic testing equipment program. Our JBT1 diagnostic testing equipment has an established presence with major automotive aftermarket customers across the United States, Mexico, and Canada. We continue to expand installations within existing customer networks while pursuing additional opportunities, including international markets. We believe there is significant long-term potential for broader deployment of this technology throughout the automotive aftermarket. Stepping back, we remain constructive about the long-term fundamentals of the automotive aftermarket. The average age of vehicles on the road continues to increase, and consumers are keeping their vehicles longer. Higher new vehicle prices also reinforce the economic incentive to maintain and repair existing vehicles. These dynamics are particularly relevant to our business because we supply essential components required for vehicles to start, stop and operate safely. Although repairs and purchases can be deferred temporarily, the underlying need for replacement parts remains. While we see temporary deferrals, We believe that a catch-up is ahead as the economy stabilizes. We believe our broad product coverage, manufacturing capabilities, customer relationships, and global operating platform uniquely position us to participate and meet the long-term demands. In summary, while the current operating environment remains challenging, we are making progress on several important fronts. We have secured significant incremental new business. We are expanding our break platform through Centric. We are pursuing additional opportunities as major customers expand geographically. Our rotating electrical diagnostic business continues to gain momentum, and we have completed an important heavy duty manufacturing relocation designed to improve our competitiveness. These developments are not dependent solely on an industry recovery. They reflect initiatives we are undertaking to strengthen our market position and improve our long-term operating performance. We remain focused on converting these opportunities, improving manufacturing utilization, generating cash flow, and delivering sustainable profitability. With that, I will turn the call over to David to review our financial results and updated outlook.

Thank you, Selwyn, and good morning, everyone. Let's start with analytics for the fiscal second quarter. Fiscal second quarter ended September 30, 2026. Net sales of $169.2 million were impacted by delayed customer orders and a reduction in tariff pass-throughs. Broader economic uncertainty, including inflation, tariffs, and uneven consumer spending, also contributed to a cautious operating environment. Additionally, Net sales for the prior year reflect $14.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers. We believe higher sales and a continued focus on efficiency and cost reductions will favorably contribute to results for the second half of fiscal 2027. From a sales perspective, as sales momentum increases, Combined with new business commitments that Selwyn referenced earlier, which has had a small impact through September 30, 2026, as well as other meaningful opportunities, we believe the company will benefit in several ways near term, including favorable impact to gross margin, continued annual cash flow generation, net bank reduction, and opportunities to increase shareholder value. In short, we believe the fundamentals of our business are strong. Regarding gross margin, let me first discuss the second quarter in more detail. Gross margin was 24.2% compared with 19.3% a year earlier. Gross margin was impacted by non-cash expenses of 2.8 percentage points and benefited from one-time items of 5.7 percentage points, including approximately $11.1 million of IEPA tariff refunds, as detailed in Exhibit 3 of this morning's earnings press release. In addition, gross margin was impacted by unfavorable foreign exchange rates of approximately 1.4 percentage points or approximately $2.4 million due to the weakening of the U.S. dollar versus the Mexican peso. Excluding the non-cash expenses and one-time items, as well as the foreign exchange impact, gross margin was approximately 22.7% for the quarter. Fiscal 2027 gross margin is expected to be favorably impacted by increased sales and overall cost reductions and efficiencies. Overall, regarding gross margin, we remain focused on overall margin accretion supported by strong momentum and greater utilization of break-related capacity from goals of existing and new business. We are also focused on positive impacts to overall margin from further improvements in operating efficiencies supported by benefiting from our tariff mitigation initiatives, better pricing for scrap sales as we gain more market share for our products, additional opportunities to relocate certain operations to our low-cost facilities globally, including Mexico, and further strategic cost reductions. These initiatives are expected to positively impact overall gross margin. Our cash flow balance sheet and liquidity for the quarter was impacted by working capital inventory ramp-up for a new business, and we used cash in operating activities of approximately $4.1 million for the second quarter. The company's revolver loan of $126.6 million, less cash of $20.8 million at September 30, 2026, resulted in net bank debt of $105.8 million. For the prior three years ended March 31, 2026, The company generated cash from operating activities of approximately $103.8 million. While quarters fluctuate, the company continues to expect to generate positive cash flow. Our liquidity of total cash plus revolver availability was approximately $104.8 million as of September 30, 2026. We remain focused on increasing operating profits and gross margin and generating positive cash flow supported by growth and operating efficiencies from a global footprint. In addition to our goal of generating increased operating profits, including benefits from our gross margin expansion initiatives previously explained, we expect further opportunities to neutralize working capital supported by customer product demand planning, enhanced inventory management, and extending our vendor payment terms, including growing our supply chain finance program offered to our event. Recently, MPA received a highly commended award in the category for best use of supply chain finance by a leading provider of supply chain programs. Regarding our debt leverage, based on information in our filing today, EBITDA for the 12 months ended September 30, 2026 was $58.9 million. EBITDA before the impact of non-cash and one-time cash items was approximately $70 million for the same period. To recap, our net bank debt was $105.8 million at September 30, 2026, compared with EBITDA before the impact of non-cash and one-time cash items mentioned above of $70 million for the 12 months ended September 30, 2026, resulting in a net bank debt to EBITDA ratio of 1.5. I should mention that under the company's authorized share repurchase program, there was approximately $20.1 million available to repurchase shares at September 30, 2026. Turning to our outlook, we are revising our fiscal 2027 guidance to reflect delayed customer orders in both our existing business and contributions from new business awards. For the fiscal year ending March 31, 2027, we now expect net sales of $715 million to $740 million, compared with our previous guidance of $780 to $800 million. The revised outlook reflects a challenging ordering environment and the timing of new program launches. As someone discussed, we expect all of the awarded programs to launch during the second half, with most launching toward fiscal year end and continuing to ramp during fiscal 2028. We expect full-year operating income of $37 million to $44 million. This outlook reflects approximately $30 million in non-cash expenses. approximately $5 million expenses associated with relocating our heavy-duty operations to Mexico and excluding approximately $11 million in IEPA tariff rate funds recognized in the second quarter. In addition, four-year depreciation amortization is estimated at approximately $9 million. To put the revised outlook into perspective, our guidance implies second half net sales of 378 to 403 million. This compares with 380 million in the prior year period, representing a decline of approximately 0.5% to growth of approximately 6.1%. The prior year second half included 19.9 million in core revenue in connection with the realignment of inventory at certain customer distribution centers. Excluding that revenue from the prior year comparison, Our projected second half sales represent growth of approximately 5% to 11.9%. We expect second half operating income of $23 million to $30 million, reflecting approximately $14 million in non-cash expenses. In addition, second half depreciation and amortization is estimated at approximately $5 million. Our expected second half improvement is supported by contributions from new business, Better utilization of our manufacturing capacity and continued cost reduction and operating efficiencies. While the timing of custom orders remain a source of uncertainty, our focus is clear. Execute the scheduled launches, improve margins and convert sales to cash. With that, we will open the call for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Hey, guys. Good morning or good afternoon.

Morning.

I was hoping, Selwyn, you could just go into more detail, you know, with the, I guess, what I always call these sales dislocations that happen here in the quarter and then, you know, we're given the guidance so that they'll persist through the balance of the year. You mentioned, I guess, activity on part of your customers and then some tariff dynamic. But I guess the first way is just go into more detail of what happened here and what disrupted so significantly these sales run rates.

Yeah. So let me sort of focus on three major points. We had a reallocation where we moved our business opportunities from Thank you, David. Just as a matter of backdrop, Brian, is that certainly in the last four weeks, we're seeing more vibrancy coming back to the entire categories that we're in. So that was number one. Then number two is we picked up a nice amount of new business from the first brand's bankruptcy or liquidation in the break business. And in that break business, What happened is that the first brand's inventory was being liquidated, and so a number of the existing customers bought inventory in that liquidation. So that deferred the ramp-up volume in what we received. Now, we think that that's substantially over, and we're receiving that now. We're receiving that now, and we think that... is going to be vibrant. And then last but not least is we've had some softening just in basically in the fundamentals, mostly in the DIY business. We were a big supplier to the DIY business, and some of those orders have got deferred. Now we're starting again to see some more vibrancy in that area. And those are the three major items that really somewhat took us by surprise. I mean... We saw a couple of months of really soft revenue, and then it's come back now, and we're hoping to see that continue.

So as a follow-up to that, to the first point there with regard to, I guess, the warehouse movement, is this one customer or is this something you're seeing more pervasive through the sector?

That is one customer. That's one customer. That particular event is one customer. If you had to look in general, I'd say across the spectrum, we see in some softness. Again, in general, we're seeing it pick up as well across the spectrum.

Yeah.

No, no. I mean, I think in general, I mean, certain customers are weaker than others, but in general, that's the trend.

and then I think it's maybe more for David. So you had this, I'm using dislocation here in the fiscal second quarter, but you took down guidance substantially for the year. But Selwyn, I hear you saying trends got better maybe in the last month of the fiscal quarter. So as you're thinking about the guidance, the thinking behind that guidance, what's embedded there? Does this reflect basically the weakness that was in Thank you very much, David.

and we expect that trend to continue. So we're already seeing orders pick up.

Yeah. And I think that, you know, the guidance, we're assuming that the tide for existing business will increase, but not all the way. We do think it's going to get stronger. And then there's a significant amount of new business that's coming on. will further enhance that. So, you know, I mean, the question is how high is the tide going to come back? Is it going to come back to our normal or even greater? Because there is, I think, some discussion in the industry that there may be some catch-up because these are, you know, when you say non-discretionary, I mean, people are delaying these repairs. Their cars don't work, but they're not scrapping their vehicles because they're not replacing, you know, a component in the vehicle. So, There's a potential for some tailwinds catching up, but we're not assuming all of that. We do think there is a recovery coming, but we're not assuming a significant tailwind at this point. But there is a possibility of that. Correct.

I appreciate it. Thank you.

Thank you. Your next question comes from the line of Derek Soderberg with Canton Fitzgerald. Your line is open. Please go ahead. Hi, Derek. Hi, Derek.

Yeah. Hey, guys. Thanks. Hey, everyone. Thanks for taking the questions. So, I want to start with the new business, the $60 million. I was curious how fast you can ramp that opportunity. It sounds like, you know, some of it's going to start shipping by the end of the fiscal year, but I was just wondering if you can kind of talk about how fast you can really ramp to that $60 million level. The 25 million announcement on new business, is that related to the 60 million? Is that the same kind of group of customers, same products? Can you talk a little bit more about the 25 million piece as well?

Yeah, so the 60 million is firm commitments that we have right now. That's annualized revenue. We believe we'll begin shipping all of it this fiscal year. It's already started. I mean, we're pretty much ready to go as the customer demand starts ramping now. Many of these, they have to transition between the old supplier and the new supplier. And in some cases, you have a changeover where boxes have to be changed or replaced. But we are very confident that all of that $60 million will begin this year. On the 25, that's incremental to the 60. Similar story. That 25 is very advanced discussions. The 60s firm commitments. The 25 is a very advanced discussions with expectations. And we believe we can get to hopefully all of that 25 by your end as well. But that's going to be a little later in the year. There may be some of that that goes into the following year. And then we've got a significant backlog lined up for next year. And that excludes the centric opportunity. is really shaping up. There's a number of very large players that are interested in it, and certainly we're evaluating how and what the most productive way is for us to launch that program, in particular in light of the quality build program that we already have out there. That's doing quite well. So we'll see how that unfolds. More news or more guidance on that to come still. as we get through them.

Got it. And sticking to the $60 million new business, is this accretive to gross margin? And David, I don't know if you can talk a little bit about the near-term gross margin target or give us Maybe some commentary on like a normalized gross margin target maybe for next fiscal year. Just maybe talk about kind of the pricing, what you're seeing on that front, you know, in this kind of maybe softer market, what we should expect on, you know, how should we expect it, you know, how should we think about gross margin kind of from here?

That's a good question. So with the additional business, gross margin should be comparable. to what we've been reporting. So if we look at the most recent history, including last fiscal year, if you go through the tables in the back of our earnings press release, where we exclude the items that impact the results that are non-cash, we've been averaging about 22 plus percent on gross margin. So we expect that when we bring on the new business, it's gonna be comparable. However, with the increasing volume that we're adding, and the overhead absorption that's going to be favorable and continue to focus on cost reduction, we do expect to see accretion in the margins.

Got it. That's super helpful. That's the only question for me. Thanks, guys.

Thank you. Thank you, Terry.

We have reached the end of our question and answer session. I will now turn the call back to Selwyn Joffe for closing remarks.

Well, I just want to thank everyone for their questions. I'd like to close by reinforcing a few important points. We recognize that our near-term results have been affected by delayed customer orders. We are focused on addressing these challenges and improving operating performance. At the same time, we believe the company's competitive position continues to strengthen. Our nearly 60 million in new annualized business commitments will generate additional revenue as these programs launch and wrap. We also see further growth potential through Centric Parts, the geographic expansion of our major customers, our rotating electrical diagnostic equipment business, and our improved heavy duty manufacturing platform and business. We believe these initiatives provide multiple avenues for revenue growth. Thank you, everyone.

Before we conclude today's call, we have one final question from George Berman with Cabot Lodge Securities. Your line is open. Please go ahead.

Hi, George.

Hi. I'd say congratulations, a very elaborative conference call, and we'll be looking to use today's market price to add to our position substantially. Question I have is, with the recent election now over, if we have any anticipated reduction in the tariff situation between U.S. and Canada, U.S. and Mexico, would that have a positive influence for you?

Well, clearly, I think the challenge that's out there today is that the cost of repair for the consumer has gone up substantially, in particular in light of the Tariff pass-throughs that have gone through. So to the extent the consumer can repair the vehicle for a lesser cost for them, our margins basically remain unchanged because we would reduce our prices, you know, to reflect the reduction in the tariffs. But the volume and the demand at the consumer level, I believe, will accelerate dramatically. So I think I think that's a very positive, very positive. In particular, when you talk about the significant role that we play in selling new units, not only remanufactured new units. Most of our remanufactured product is exempt because it's coming out of Mexico. FAST is becoming leaders in the new unit business, both for brake calipers and for rotating electrical units. and those are made in our Malaysia facilities, which are extremely efficient, but they have the burden of bearing some tariffs. So to the extent that those tariffs come off, it will be very advantageous to pricing and to our margins.

Great. Maybe another quick question on Mexico. Over the last few quarters, you've alluded to the fact that Mexico is growing quite nicely for you. I saw that one of your customers AutoZone has recently been also expanding into Brazil. Do you see the South American market in general being another growth opportunity for you?

That's a great question. I mean, what's happening is because of the success in Mexico and all of the South American trade contracts and free enterprise zones between different countries, between Mexico and South America, as well as AutoZone going into Brazil, we think South America is probably the biggest opportunity as far as a new continent for us. Our Mexico sales are growing significantly and we're seeing a lot of Mexican interest in them wanting to export into South America, which opens the door for us to move into South America as well. I think another exciting part of that is that Our diagnostics equipment is all bilingual. It's not bilingual, but right now, trilingual, but we have the flexibility of even adding Portuguese to our diagnostics. The diagnostics capability in the rotating electrical segment for us is extremely strong. And right now, to the best of my knowledge, we're the only tester that's available that can actually test the communication protocols. So to the extent you don't test communication protocols, you may get false positives on testing. So having these testing units in locations where rotating electrical alternates and startles the soul is critical. And we're fast reaching the point where we have a majority of the locations in the United States. We still have a lot more to go, but significant Thank you very much. I mean, we have one of the broadest product offerings and our cataloging capabilities allow us to be able to reach these international markets fairly quickly and with a breadth that I think is world leading. So I appreciate that question, but I definitely think that as you look into the future, that's a big growth opportunity. The other side is the centric formulations If you look at the formulations and the acceptance and the amount of centric at a time is around $400 million in revenue. And these great pads in particular, that unique formulation of these pads is so highly accepted by the installer that we have no doubt that as they start reaching, reintroduced into the United States, which we already see the research that the installers are waiting to see this product, Thank you very much.

One quick housekeeping question. How many shares have you bought back in the current quarter? I saw that your interest costs are coming down dramatically as well.

That is true. Our interest costs, I mean, unfortunately, that interest cost comes down because some of the sales, sales is lower and we don't use the supply chain finance programming as much. But, you know, we still got $20 million available on our buyback. We bought back I mean, I think over $11 or $12 million, David. More than that, what do we have?

As of June 30, the trailing 12 months was by $11 million.

A little over $11 million. So we have still another $20 million in the current authorization available. And so we're optimistic about our potential and our future, and we continue to keep that as a potential for capital allocation.

and I think you do have a poison pill in place, right?

No, we do not have a poison pill.

Oh. That might be something you want to think about because it seems to me the equity evaluation is extremely low right now.

Yeah, well, I certainly agree with that, yes. Good luck for the future. We'll take that under consideration. Appreciate that.

Thank you.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Thank you very much.