Earnings call transcript: Motorcar Parts Q3 FY2025 beats expectations, stock surges

Motorcar Parts of America Inc (NASDAQ:MPAA) reported its third-quarter fiscal year 2025 earnings, significantly surpassing Wall Street estimates. The company reported an earnings per share (EPS) of $0.11, far exceeding the forecasted $0.02. Revenue reached $186.2 million, also surpassing expectations of $178.7 million. Following the announcement, MPAA’s stock surged by 15.3%, reflecting investor confidence and enthusiasm about the company’s robust performance and positive outlook. According to InvestingPro data, the company’s market capitalization stands at $131.62 million, with a beta of 1.47 indicating higher volatility than the broader market.

Key Takeaways

• Motorcar Parts reported a strong EPS of $0.11, beating the forecast of $0.02.
• Revenue increased by 8.3% year-over-year to $186.2 million.
• The stock price jumped 15.3% following the earnings announcement.
• The company achieved a significant reduction in net debt by 26%.
• Positive market sentiment driven by improved gross margin and operational efficiencies.

Company Performance

Motorcar Parts of America demonstrated a remarkable turnaround in its third-quarter performance, reporting a net income of $2.3 million compared to a net loss of $47.2 million in the same period last year. The company attributed its success to strong demand in its rotating electrical and brake-related products, alongside strategic operational improvements. The automotive parts manufacturer is capitalizing on the aging vehicle fleet in the U.S., where the average car age is 12.8 years, ensuring continued demand for aftermarket parts.

Financial Highlights

• Revenue: $186.2 million, up 8.3% year-over-year.
• Earnings per share: $0.11, significantly higher than the $0.02 forecast.
• Gross Profit: $44.9 million, a 49.4% increase from the previous year.
• Gross Margin: 24.1%, up from 17.5% last year.
• Cash from Operating Activities: $34.4 million.
• Net Debt Reduction: $30.3 million, reducing net debt to $84 million.

Earnings vs. Forecast

Motorcar Parts delivered an EPS of $0.11 against a forecast of $0.02, marking a substantial surprise of 450%. This performance is notable compared to previous quarters, where the company faced financial challenges. Revenue also exceeded expectations, reaching $186.2 million compared to the forecasted $178.7 million, reflecting a positive sales momentum.

Market Reaction

In response to the earnings report, Motorcar Parts’ stock price surged by 15.3%, closing at $6.63. This marks a significant recovery from its 52-week low of $4.36, indicating strong investor confidence. The stock’s movement aligns with the broader market’s positive trend in the automotive sector, driven by robust demand for aftermarket parts.

Outlook & Guidance

Looking ahead, Motorcar Parts anticipates increased operating profit and gross margin for fiscal year 2025. The company is also focusing on reducing foreign exchange impacts and exploring opportunities to benefit from potential interest rate reductions. Future guidance projects an EPS of $0.56 for FY2025 and $0.92 for FY2026, with revenue forecasts of $755 million and $800 million, respectively.

Executive Commentary

CEO Selwyn Joffe emphasized the company’s strategic strengths, stating, "We are continuing to leverage our strengths, including great products manufactured at state-of-the-art facilities, solid customer relationships, industry-leading SKU coverage and order fill." CFO David Lee highlighted the financial advantages of reduced interest rates, noting, "For every one point reduction in interest rates, interest expense for accounts receivable discount programs is reduced by approximately $6 million."

Risks and Challenges

• Supply Chain Disruptions: Potential impacts from global supply chain challenges could affect production and delivery timelines.
• Market Saturation: Increased competition in the automotive aftermarket sector may pressure pricing and margins.
• Macroeconomic Factors: Economic downturns or fluctuations in consumer spending could impact demand for non-discretionary parts.
• Tariff Environment: Changes in trade policies or tariffs could influence cost structures and profitability.
• Foreign Exchange Volatility: Currency fluctuations may affect financial results, particularly given the company’s efforts to reduce dependency on China-sourced products.

Q&A

During the earnings call, analysts inquired about the tariff environment and its potential impacts on the company’s operations. Executives explained strategies to mitigate these effects, including production efficiencies and capacity expansion in the brake caliper business. The discussion also covered the positive trajectory of gross margin improvements, attributed to increased production efficiency and a seasoned workforce.

Full transcript - Motorcar Parts of America Inc (MPAA) Q3 2025:

Regina, Conference Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America Inc. Fiscal twenty twenty five Third Quarter Conference Call and Webcast. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session. I would now like to turn the conference over to Gary Mayer, Vice President, Corporate Communications and Investor Relations at Motorcar Parts of America. Please go ahead.

Gary Mayer, Vice President, Corporate Communications and Investor Relations, Motorcar Parts of America: Thank you, Regina. Thanks, everyone, for joining us for our call this morning. Before I begin, I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer and David Lee, the company’s Chief Financial Officer. Let me remind everyone of the Safe Harbor statement included in today’s press release. Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward looking statements, including statements made during today’s conference call.

Such forward looking statements are based on the company’s current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward looking statements. These forward looking statements involve significant risks and uncertainties, some of which are beyond the control of the company and are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved.

The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the ongoing risks and uncertainties of the company’s business, I refer you to the various SEC filings. With that, I’d like to begin the call and turn it over to Sal.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you, Gary. I appreciate everyone joining us today. We are certainly encouraged by our record sales, gross margin improvement and solid cash flow generation for the fiscal twenty twenty five third quarter. Our initiatives to enhance profitability are gaining traction. Our team continues to be focused on continuous improvements and we are excited by the opportunities for the balance of fiscal twenty twenty five and beyond.

We generated approximately $34,400,000 of cash from operating activities during the fiscal third quarter, primarily due to strong operating profits. We remain focused on initiatives to enhance profitability, including gross margin expansion and neutralizing working capital which should continue to result in strong cash flow generation. With regard to our balance sheet, our positive cash flow and related initiatives enabled us to reduce net debt by $30,300,000 for the fiscal third quarter, resulting in a 26% reduction to $84,000,000 from $114,000,000 In addition, as highlighted in our earnings press release this morning, we repurchased 268,130 shares for $2,100,000 at an average price of $7.82 dollars under our current repurchase authorization program. We anticipate further opportunities to enhance shareholder value through strong cash generation and the neutralization of working capital. I should mention that rotating electrical, our fifty plus year flagship category continues to generate solid performance and we expect further opportunities to add retail and traditional customers despite some recent market softness.

As I’ve mentioned many times, the replacement of alternators and starters cannot be deferred. If these products are broken, your car is not drivable. And the aging car park remains a favorable tailwind with multiple replacement opportunities for the life of vehicles. We are also particularly excited by the continued success of our emerging and second largest category brake related products. We expect continued success in this category based on our quality, customer service and capacity to meet demand.

And we anticipate strong demand as we enter the important spring repair season. Equally important, these accelerating brake related product sales support purchasing and production efficiencies, which contribute to gross margin improvement. Our team is doing an exceptional job to further enhance performance metrics and we look forward to continued sales growth for this important non discretionary product category. As I previously mentioned and as referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are non cash and beyond our control, particularly the current sharply unfavorable non cash mark to market foreign exchange loss from Mexican lease liabilities and forward contracts. A strengthening dollar versus the peso results in large non cash mark to market expenses, which we internally eliminate when evaluating our underlying results.

We are continuing to look at opportunities to minimize these non cash expenses, including funding our Mexico operations with pesos from sales in Mexico. As our sales in Mexico continue to grow, we will purchase fewer forward contracts to meet our peso obligations, which will lessen the impact of non cash foreign exchange expense fluctuations. Obviously, interest rates particularly applicable to vendor finance programs utilized by our customers are a headwind. On a positive note, interest rates have decreased. If this trend continues, this should benefit profitability.

Utilizing our low cost global footprint will facilitate further operating efficiencies. We are actively implementing additional initiatives to further enhance gross margins. Let me take a moment to highlight a few key near term strategic initiatives that support our favorable outlook. With respect to our diagnostic business, as I’ve previously mentioned, we are experiencing great success with our JBT1 benchtop test and we remain focused on achieving the $100,000,000 milestone for diagnostic equipment. Additional service related revenue is expected as more testers are deployed, which includes repairs, software and database updates.

These contributions will increase as the installed basement matures. We also expect more opportunities outside North America as the business evolves. With regard to our heavy duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy duty aftermarket segment. Our growth opportunities continue to gain momentum across multiple platforms such as agriculture, classified trucks, refrigeration, construction, material handling and transit and motor coach. Our Dixie brand is also evolving as an important supplier to the heavy duty original equipment manufacturers.

We will remain focused on sales growth profitability and neutralizing working capital. As I noted earlier, we expect that sales and profitability will continue to grow organically. From a strategic standpoint, we are continuing to leverage our strengths, including great products manufactured at state of the art facilities, solid customer relationships, industry leading SKU coverage and order fill, not to mention our value added merchandising and marketing support. Our hard part sales in Mexico continued to gain momentum as we experienced increased demand for our aftermarket parts. The rate of growth in this market is exciting and we are well positioned to utilize our footprint to meet the growing demand.

We are focused on increasing share in this region. We continue to benefit and grow sales via our relationships with U. S. Based retailers, warehouse distributors, who are gaining a presence in this emerging market as well as through Mexican distributors. Favorable long term dynamics continue to bode well for the company and we’re extremely well positioned for suitable top and bottom line growth in our hard parts business as well as testing solutions.

We are focused on growth across all product lines, including our quality built brand, which is gaining market share within the professional installer market. This includes our most recent additions to our portfolio of brake calipers, brake pads and rotors. I reiterate that as we grow these product lines, we expect overall gross margin accretion. We are beginning to see the benefits. It is worth reiterating that 98.8% of U.

S. Car park is comprised of internal combustion engines and hybrid engine vehicles. Non discretionary aftermarket parts for the internal combustion engine market will be here for decades and outlook supported by recently updated industry data showing that the average age of vehicles is now 12.8 plus. One of our key competitive advantage is the ability to offer a broad range of applications for all makes and models. We remain focused on newer model applications and our ability to meet expected demand as these vehicles enter the replacement market.

I’ll now turn the call over to David to review our results in greater detail.

David Lee, Chief Financial Officer, Motorcar Parts of America: Thank you, Selwyn, and good morning, everyone. I encourage everyone to read the earnings press release issued this morning as well as a 10 Q that will be filed later today. Let me first reiterate key financial performance metrics for the fiscal ’twenty five third quarter that we highlighted in this morning’s news release. Net sales increased 8.3% for a fiscal third quarter record $186,200,000 Gross profit increased 49.4% to a record $44,900,000 Net income for the quarter was $2,300,000 generated cash from operating activities of $34,400,000 and reduced net bank debt by $30,300,000 repurchased 268,130 shares for $2,100,000 dollars Non cash items reduced net income by $5,000,000 and gross profit by $3,400,000 for the quarter as detailed in the exhibits. Net sales for the fiscal twenty twenty five third quarter increased 8.3% to a third quarter record 186,200,000 from $171,900,000 in the prior year.

Gross profit for the fiscal ’twenty five third quarter increased 49.4% to a record $44,900,000 from $30,000,000 a year earlier. I should mention that gross profit for the quarter was impacted by non cash expenses. The non cash expenses reflect core and finished goods premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP. The total for these non cash expenses in the quarter was approximately $3,400,000 or a 1.8% impact to gross margin. Gross margin for the fiscal ’twenty five third quarter was 24.1% compared with 17.5% a year earlier.

Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we are also focused on other initiatives to enhance gross margins. Predominantly due to a $2,500,000 non cash mark to market foreign exchange loss compared with a $3,100,000 non cash mark to market foreign exchange gain in the prior year and a $1,800,000 increased expense resulting from currency exchange rates compared with a year ago. Operating expenses were $27,300,000 compared with $20,500,000 last year. I should note that excluding these items above, operating expense decreased by $627,000 to $23,600,000 compared with $24,200,000 a year earlier. For those of you who are not familiar with our operations, our leases in Mexico are U.

S. Dollar denominated leases. However, the leases are recorded in pesos at our Mexico subsidiary. As a result, the fixed U. S.

Dollar leases, which are paid in U. S. Dollars, are remeasured at the end of every period to reflect the current exchange rate, resulting in a $1,900,000 non cash foreign exchange impact of lease liabilities for the third quarter. Additionally, the company purchases forward peso contracts, which are also remeasured at the end of every period to reflect the current exchange rate, which resulted in a $585,000 non cash foreign exchange impact of forward contracts for the fiscal third quarter. I might add that we are starting to reduce the purchase of peso forward contracts by utilizing pesos generated through our Mexican sales subsidiary to fund our operations there, which will reduce the impact of gains and losses from the remeasurement at the end of each period to reflect the current exchange rate.

We are continuing to analyze opportunities to reduce exposure to the foreign exchange impact of lease liabilities and the impact of foreign currency forward contracts. Interest expense for the fiscal third quarter decreased by $3,900,000 to $14,400,000 from $18,300,000 a year ago, impacted by lower average outstanding balances under the company’s credit facility and lower interest rates. For the third quarter, income tax expense was $1,100,000 compared with $37,300,000 income tax expense for the prior year, primarily due to a $37,500,000 U. S. Federal and state deferred tax asset valuation allowance under U.

S. GAAP for the prior year, which is non cash and does not impact any operating metrics. The effective tax rate for the fiscal third quarter was due in part to the inability to recognize the benefit of losses at specific jurisdictions. However, we expect these losses will be utilized against future profits, which will benefit future tax rates. Obviously, there are various factors impacting the tax effect.

Net income for the fiscal twenty twenty five third quarter was $2,300,000 or $0.11 per diluted share, including the impact of noncash expenses of $5,000,000 or $0.24 per diluted share as detailed in Exhibit one in this morning’s earnings press release. Net loss for the prior year was $47,200,000 or $2.4 per share, including the impact of noncash expenses of $40,400,000 or $2.06 per share and cash expenses of $1,400,000 or $0.07 per share as detailed in Exhibit one. As previously explained, higher sales volume and operating efficiencies will further improve its growth. EBITDA for the fiscal third quarter was $20,400,000 reflecting the $6,600,000 impact of non cash expenses detailed in Exhibit five of this morning’s earnings press release. EBITDA before the impact of noncash expenses mentioned above was $27,000,000 for the third quarter.

Now let me discuss the nine month results. Net sales for the fiscal twenty twenty five nine month period increased 6.8% to a record $564,200,000 from $528,200,000 a year ago. Gross profit for the fiscal twenty twenty five nine month period increased 18 to a record $115,300,000 from $97,800,000 a year earlier. Gross margin for the fiscal twenty five nine month period was 20.4% compared with 18.5% a year earlier. Gross margin for the fiscal twenty five nine month period was impacted by $10,300,000 or 1.8% of noncash expenses and $1,300,000 or 0.2% of one time cash expenses as detailed in Exhibit four in this morning’s earnings press release.

In addition to the items detailed in Exhibit four, gross profit for the current nine month period was also impacted by $4,000,000 or 0.7% of certain one time expenses for onboarding new business. Net loss for the fiscal twenty twenty five nine month period was 18,700,000 or $0.95 per share, including the impact of noncash expenses of $22,400,000 or $1.13 per share and one time cash expenses of $3,300,000 or $0.17 per share as detailed in Exhibit two in this morning’s earnings press release. Net loss for the prior nine month period was $50,600,000 or $2.58 per share, including the impact of non cash expenses of $49,500,000 or $2.53 per share and cash expenses of $5,800,000 or $0.3 per share as detailed in Exhibit two. In addition to the items detailed in Exhibit two, as previously noted, results for the current nine month period were also impacted by $4,000,000 or $0.15 per share of certain one time expenses for onboarding new business. EBITDA for the fiscal twenty twenty five nine month period was $34,000,000 EBITDA was impacted by $29,800,000 of noncash expenses as well as $4,400,000 in one time cash expenses detailed in Exhibit five of this morning’s earnings press release.

EBITDA before the impact of noncash and cash expenses mentioned above was $68,200,000 for the current period, despite the impact of certain one time $4,000,000 of expenses for onboarding new business. Now we will move on to cash flow and key corporate items. The company generated cash of approximately $34,400,000 in operating activities during the fiscal ’twenty five third quarter. We anticipate an increase in operating profit and gross margin on a year over year basis for fiscal twenty twenty five and the generation of positive cash flow for the year, supported by organic growth from customer demand and operating efficiencies from our global footprint expansion. In addition to our goal of generating increased operating profits, we are diligently focused on opportunities to neutralize working capital, including customer product demand planning, enhanced inventory management, and further extending our vendor payment terms.

We expect increasing financial performance from both new and existing product lines, including our emerging break categories. Net bank debt decreased by 30,300,000 during the fiscal third quarter to $84,000,000 from $114,300,000 Total (EPA:TTEF) cash and availability was approximately $138,800,000 I should mention that for every one point reduction in interest rates, interest expense for accounts receivable discount programs offered by customers is reduced by approximately $6,000,000 For further explanation on the reconciliation of items that impacted results and non GAAP financial measures, please refer to Exhibits one through five in this morning’s earnings press release. I would now like to open the line for questions.

Regina, Conference Operator: We’ll take our first question from the line of Derek Soderbergh with Cantor Fitzgerald. Please go ahead.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Yes. Good morning, guys. Thanks for taking my questions. Just wanted to start with the tariff environment quick. Selwyn, you’ve sort of been through a similar tariff environment before.

Can you sort of clue us in on what conversations you’re having with suppliers and customers? How we should think about the potential impact of tariffs on the business? And then given your fairly global manufacturing footprint, is there a scenario where you shift around manufacturing at all? Okay.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: So let me there’s a lot there and obviously it’s very fast evolving and a lot going on. Just start with the general environment is that there are hundreds of suppliers that are implementing tariff surcharges for the Chinese tariffs and we’re one of them. So we have implemented tariff surcharges. And I’m sure and again, this is speculation, but I’ve listened to various public forums where our customers are talking about passing these tariffs on to consumer. We have been somewhat fortunate in that over the last number of years, we’ve become less dependent on China even though we still do have a relatively decent sized tariff base that we’d have to pay tariffs off.

But we don’t believe that our out of pocket will be material. And so at this point, again, we’re managing through it, but we think we’re going to be fine.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That’s helpful. And then just on the gross margins, looks like the story is playing out really nicely here. Is there any way you could maybe quantify some of the gross margin expansion, quite a big step up year over year? It sounds like you’ve gotten some favorable scale pricing, accretion.

Is there any way to quantify those buckets that drove that expansion? Yes. And then,

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: yep. Let me deal with that one. We can only talk about the segments and we don’t we have limited, but I think the story is on a simplistic basis, which nothing is simple is wherever we have product revenue, we have initiatives going to implement more and more efficiencies. And as our revenue continues to grow, the overhead absorption is a natural and we talked about production and purchasing efficiencies. It all comes naturally as well as us working through it and various automation initiatives and all sorts of initiatives to continue and they’re paying off and you know we relocated a Torrance facility that that that is you know essentially there’s no more production or distribution there so that’s all into into Mexico right now.

As far as changing our footprint I think you’d ask that I don’t think we’re any worse off than anybody, but I and I will comment as I think we’re better off than the general competitive base. It seems that there’s a fund there’s a floor of 25% tariffs in Chinese goods right now and now there’s this extra 10% surcharge. So it’s 35% and if we look at our other main, you know, operating venues Mexico obviously we came close to having tariffs there but it looks like and again I don’t know but from my readings it looks like the Mexican U. S. Government are cooperating.

Canada is relatively minor for us. So I don’t see us moving right now any production or anything from that perspective.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That’s helpful. And David, just looking at cash generation been pretty strong here, paying down debt, looks like interest expense is going to come down. I guess looking ahead, how do you plan on using cash? You bought back some shares here.

Is that the expectation to continue that? Can you just talk about use of cash going forward?

David Lee, Chief Financial Officer, Motorcar Parts of America: Yes. You hit it on the nail. So we’re going to continue to generate good cash flow, pay down debt, be opportunistic with share purchase and do all the right things to increase shareholder value.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That’s helpful. That’s all from me. Thanks guys.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you. Appreciate it there.

Regina, Conference Operator: Our next question will come from the line of Bill Dezellem with Tieton Capital Management. Please go ahead.

Bill Dezellem, Analyst, Tieton Capital Management: Thank you. I also want to follow-up on gross margin and hoping you can provide a bit more perspective. In this context, your sales in December were lower than they were in September. I think that’s the normal seasonal pattern. And yet, your gross profit dollars were higher in December at nearly $45,000,000 versus about $41,000,000 in the December quarter or probably September quarter.

So you had lower sales and higher gross profit dollars. Would you talk in more detail about kind of that specific swing and the success there?

David Lee, Chief Financial Officer, Motorcar Parts of America: We continue to be focused on every quarter being more efficient with our operating model. So in the December, we were even more efficient than gross margin dollars and percentage are really paying off. And we will continue to be focused on expanding margins.

Bill Dezellem, Analyst, Tieton Capital Management: And following up on that, what initiative or initiatives were most impactful sequentially?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: People used to ask me that about the restaurant business. What does it take to have a successful business in the restaurant business? And I used to answer, I used to quote a famous restaurant too. It’s not one thing, it’s a thousand little things. And so, I mean, it’s focused around build production efficiencies is really where there’s a lot of activity as we scale that production facility.

So when you have economies of scale and you’re able to reallocate and allocate production volume in the most in a more efficient manner. I mean, that’s why you get these results. It’s sort of like you’re able to fill each of the channels of need for production in the different production arena. So volume and we’ve been talking about this volume is definitely a part of that and then the ability of us to have a seasoned workforce. We’ve have a great workforce, a very knowledgeable workforce And as they grow and get more seasoned on the new product lines and we’re seeing tremendous inroads and great innovation in terms of, again, becoming more efficient.

So there’s no one thing. I mean, I think that our strategy is eliminate waste wherever we can and neutralize working capital. And at the same time, we need to keep growing our sales because that makes it easier to do all those things.

Bill Dezellem, Analyst, Tieton Capital Management: And I think that’s where my favorable surprise was is that your sales sequentially were down even if seasonally the norm and yet your gross profit was up. That just seemed extraordinary.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Yes. Then it also relates to how much production you’ve got in the quarter. We had new business coming on for production. So the volume is not for manufacturing activities, volume for us is not directly related to sales always. I mean, we have we’re ramping up for new business.

And So and again, the different initiatives take effect, our purchasing initiatives take effect and that applies to volume and no volume, but having overall volume allows you to get those concessions.

David Lee, Chief Financial Officer, Motorcar Parts of America: And I think you all have

Bill Dezellem, Analyst, Tieton Capital Management: talked on the last call or two how you have additional brake business that would be ramping in calendar 2025, so this calendar year. So are we seeing the production benefits flow through margin of that business that will then see the sales benefits in the March and following quarters?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Yes. Actually, you’re seeing a little bit of an it’s true we do have new business that’s being ramped up. But in the beginning, as you’re building inventory for this new business, there’s some inefficiencies because you’re building some lower volume items. We should see those margins get better as we roll this business out and that’s going quite well. Thank you.

Bill Dezellem, Analyst, Tieton Capital Management: All right. That’s helpful. And relative to the brake caliper ramp up to whatever normalized volumes are, where are we at in that ramp process?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: I would say, it’s hard to tell that to give you a number. I will give you a number in a moment. But one thing is you set out to begin a new category, you design a facility that you think can hit a certain benchmark. And as you become as you operate it, you learn from it. And I’m happy to say that I think that our capacity is will end up being greater than we anticipated to be.

So expansion opportunities in that facility will be greater. But so it’s a moving target as to what the denominator is. The numerator, we know what we’re doing. But there’s a lot of opportunity for growth. So I don’t want to I mean, I can give you a percentage, but it’s not a helpful percentage because we’re more efficient at a lower percentage of capacity today than we thought we would ever be.

And so and what that means is that the factory opportunity has grown without additional CapEx or we are able to produce more units and then we’ll even get more efficient out of that facility as time goes on. But we are a major player. I mean, I don’t know if we’re the second largest brake caliper provider in The U. S. Today or not, but we are certainly up

Bill Dezellem, Analyst, Tieton Capital Management: there. And just to make sure I’m clear on all that, that’s really helpful that you mentioned in your opening remarks that the rotating electrical business is operating efficiency or efficiently and that continues to be the case. And then historically, the brake caliper business has not been running efficiently simply because of the low volumes as you start to ramp that business. But as you’re growing towards number two or number one in the country, you are having better margins or better efficiency even at the lower volumes than you anticipated as your staff as employees have learned how to simply do things better. And this happens to be the quarter where a lot of that culminated and becomes more visible.

Is that a fair characterization before I step offline?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: No, no. Let me just clarify one thing is that we’re still doing the higher volumes, but what I’m the point I’m trying to make is the capacity has actually grown from what our initial anticipation is. So yes, we’re getting these efficiencies. These efficiencies are still evolving. So they’re not culminated.

I mean, this is definitely an evolving program that we’re doing. And, again, as new product lines get more mature, they perform better. So it’s mostly accurate, but we are producing higher volumes already. But we have what I would say is additional opportunity to take that capacity up even higher than we thought it could go.

Bill Dezellem, Analyst, Tieton Capital Management: Great. Thank you for the clarification and congratulations.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you. Appreciate the questions.

Regina, Conference Operator: And that will conclude our question and answer session. And I will now turn the meeting back over to Selwyn Jaffee for closing remarks.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Okay. Well, in summary, we remain bullish about our outlook. We remain laser focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand for nondiscretionary products as well as from our diagnostic testing capabilities. Recent proposals by the Trump administration about tariffs continue to make headlines. At this point, there’s a lot of speculation.

We will take appropriate action as necessary, including customer surcharges to offset the tariffs and goods from Mexico and Canada should they be imposed. With regard to China, we have notified our customers that we are implementing a surcharge to offset China’s recently announced tariffs. We continue to leverage our expertise in solid customer and supplier partnerships. This includes our supply chain vendor finance program that benefits our suppliers. Our liquidity is strong and we have the resources, capacity and capability to enhance shareholder value.

In closing, I must recognize the contributions of all our team members who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for parts and solutions that move our world today and tomorrow. We also appreciate the continued support of our shareholders and thank everyone again for joining us for the call. We look forward to speaking to you with you when we host our fiscal twenty twenty five fourth quarter call in June and at various investor conferences and meetings. Thank you.

Regina, Conference Operator: That will conclude today’s meeting. Thank you all for joining. You may now disconnect.

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